Interesting times for development finance

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Judging by some recent loan applications, the second tier banks have recently come under more scrutiny from APRA. It is a real concern when second tier banks start to change the rules after construction has commenced on a project.

We most certainly are living in interesting times in the development finance world.

Pull back by the banks from the market, apartment oversupply, slowing sales rates (helped along by more tightening of credit by the banks) and the royal commission, to name but a few items which are now shaping the market.

Despite what is being said by some in the media, most of the long established non-banks, at least the ones I have spoken to, are pulling back from providing development finance.

Lenders with exposure to the Sydney market are concerned about falling prices and slowing sales rates. The rest of us are seeing average loan terms extending, which reduces our lending velocity.

I am glad that GPS only has exposure to the more boring south-east Queensland market, which continues to plod along.

As expected at this point in the property cycle, there is an increase of new entrants into the market. I am yet to find a way of saying to developers “be careful” without sounding jaded.

I keep hearing the horror stories, such as a large fee paid upon offer of finance but, sorry, it didn’t value up. Or offers of a 7% interest rate, but sorry its 12%-plus.

I have been around long enough to remember the promises of cheap funding lines from petrodollars. Be it Asian, .com, etc there is always some in vogue reason why there is cheap money on offer.

I am seeing that the new entrants into the non-bank lending world, who have the money and appetite for development finance, are looking for larger size loans ($20 million plus) and blood in the water.

If the returns are not good enough, then they will move their dollars elsewhere.

Development finance is going to get even tighter and how it will be delivered into the future most certainly will change.

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