Tighter finance market the new normal
A tighter financial market is the ‘new normal’, forcing developers to look beyond the big banks to help finance their projects, says director of Development Finance Partners, Baxter Gamble.
“The introduction of macroprudential guidelines is most certainly having an impact on developers’ ability to get finance, with major banks tightening their lending criteria for investors and holding more capital against their books,” Gamble (pictured) says.
“The Australian Prudential Regulatory Authority has urged the banks to reduce their loan-to-value (LVR) ratios to secure more capital from developers while ensuring pre-sales generally exceed 100 per cent of the loan. This is making it extremely hard for developers to obtain finance without pre-sales,” Gamble explains.
“Getting the right finance is one of the most challenging parts of property development,” says Omira Property Development’s Alasdair Baker.
Baker was looking to finance an 11-unit apartment development in an established Brisbane suburb. Needing construction finance of $3 million, he wanted to complete the project without pre-sales to maximise selling prices. Baker also wanted a high loan-to-value ratio and turned to DFP for help.
“We knew we wouldn’t get finance without pre-sales from one of the big banks. I went to DFP because I knew I could get the result I wanted,” he explains.
“There was a large pipeline of stock due to come onto the Brisbane market, so we needed to get construction underway quickly to ensure we were ahead of the pack.
“Pre-selling per cent of the units – which is what the big banks require – would mean we weren’t on site as quickly. By going through DFP, I was able to hold back stock until almost completion, benefit from the rise in the market, and avoid the higher commission costs associated with a specialist off-the-plan agent.”
A low-doc loan application achieved a positive outcome.
“It’s one thing to make promises, but another to keep them. I’ve been burnt in the past – having finance from one of the big retail banks withdrawn just two days before settlement. The delays in consequence were frustrating and costly. DFP delivers on its promises,” Baker concludes.