In April 2015 I issued a letter of offer for a project (Project A). I was informed that I was too expensive and they would pursue bank finance. In May 2015 one of my repeat borrowers discussed with me a very similar project in the same street (Project B).
GPS funded Project B without a presales requirement. It is now nearly complete. All units have been sold. The borrower will shortly bank a tidy profit from a successful project. We are moving on with the next project for this developer.
Applications for finance for Project A have passed over my desk many times in the last year from a number of brokers. It is still a vacant site, and therefore has no holding income. The project is now unviable as the cost of construction has increased by about $60,000 per unit. The deal has also been well and truly “shopped”, which financiers consider to be a credit risk. Due to the current restrictions on construction finance it is currently a buyers’ market for developer sites. The options for the developers of Project A would appear to be to sell the site to mitigate losses or pump in a substantial amount of equity for little return.
The developers of Project A have lamented to me their decision to pursue bank finance. They noted that presales requirements continued to grow, marketers did not perform and LVRs decreased.
Certainty has a value.
