Lending crackdown fuels lucrative debt market

Discussion in 'Property Market Economics' started by Zoolander, 13th Dec, 2017.

Join Australia's most dynamic and respected property investment community
  1. Zoolander

    Zoolander Well-Known Member

    Joined:
    15th Dec, 2016
    Posts:
    668
    Location:
    Sydney
    Australia's crackdown on property lending fuels lucrative debt market

    I wondered where developers were getting their finances from if the big 4 are forced to slow. Interest rates from these non-bank lenders is double what the banks were charging. Interesting read. Missed profit opportunity for bank shareholders perhaps?

    Curious to hear opinions of members who are closer to this topic.
     
  2. is_don_is_good

    is_don_is_good Well-Known Member

    Joined:
    26th Dec, 2016
    Posts:
    130
    Location:
    Melbourne
    Banks have tightened up a lot and won't go near a lot of sites and suburbs unless the developer has a good relationship or a lot of money and assets.

    I get cold called and emailed through work from finance groups. Windsor capital management, fortress investment group, etc. They send through their shpiel about how they can help where banks won't go anymore.

    eg

    Addressing Tighter Regulations on Development Finance

    The property wobble may have started taking a toll on property development businesses as capital access becomes tougher to get these days. While the debate continues, the current state of the Australian property market, one thing has been clear: property developers are in for tougher financing terms.

    Australia has imposed tighter regulations on development finance. Specifically, stricter rules are now in place for developers thanks to new capital requirements. There are also now restrictions on the lending to investors on top of increasing settlement risk towards the end of the project.

    In the past, many property developers made the news as they fell out of negotiations with lenders because of the new lending terms. Additionally, higher level of loan coverage also contributed to the challenges now faced by property developers. Typically, banks now advise developers that the percentage of pre-sold apartments be equated to 100% or more in of the bank-provided debt. The Australian Financial Review previously reported that the mark before was only at 80%. This means that the loan-to-value rations have changed and banks will now only provide 75% of the development cost as opposed to the previous 80%.

    Banks have expressed concern over the possibility of higher settlement risk to individual purchasers upon project completion because of the new regulations. Big banks are cracking down on their lending schemes that even national or big property developers are facing tighter lending terms. Per reports, banks are resorting to stricter conditions because the market seems to be heating up. The situation is a double-edged sword that can hurt and benefit property developers depends on it is approached.

    When regulation becomes a tough thing to crack, property developers must push for their goals. This is where _____ can assist both established and new property developers.

    _____ is an experienced and credible independent development finance advisory firm. The company's experience spans a full spectrum of Australian real estate classes including all phases and stages of debt and capital structures.

    _____'s competitive advantage can be found in its independent nature and a unique framework that goes beyond the scope of banks, real estate, valuation and other professional firms.

    Contact us today to see how we may be able to assist with alternate funding structures for your project.
     
    Last edited by a moderator: 18th Dec, 2017
    13161 likes this.
  3. euro73

    euro73 Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,125
    Location:
    The beautiful Hills District, Sydney Australia
    This information is @ 2 years behind the curve. Developer finance from the Big 4 became tight right after APRA round 1 in mid 2015. Private funders are the primary funding source for many developers now. Have been for @ 2 years.
     
  4. Redom

    Redom Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    4,607
    Location:
    Sydney (Australia Wide)
    The headline in general is a good one for the non banking and private space in 2018. There's a lot of lending vacuums to fill now & i suspect the non banks will step up & grow into areas of lending they weren't particular specialists at before.
    E.g. expats, foreign income, SMSF, development finance, borrowing capacity restrictions.

    This is a pretty normal reaction to regulation - the activity doesn't completely stop, it generally finds its way to the 'shadow banking sector'. While its very small, i suspect regulators won't mind this too much as the risk is spread outside ADI's & the size of this lending shouldn't pose too much stability concern for the overall financial system.

    Mortgages & lending to housing in general are a very 'safe asset' when large amounts of collateral are put up, diversified & packaged.