My usual newsletter article for this time of year is a detailed review of the past financial year. I expect most of you are like me and don’t want to be reminded.
At GPS it was a lot of hard work looking after the funds we held and adapting to meet the changing market conditions.
The year ahead is a much more pleasant and interesting subject. I am more comfortable with the residential development market than I have been for quite some time.
As noted last month, expect less projects within the Brisbane City Council area.
While sale prices for completed product have positive signs of growth, there is an increased risk of escalating building costs. This has increased the depth of the loan pipeline at GPS.
Developers are concerned about having to sell at today’s prices in order to achieve pre-sale levels required for bank funding but then having to pay tomorrow’s cost for construction. They are after the flexibility which GPS can provide regarding pre-sales. This assists them to turn it around so they can lock in today’s build prices and be able to sell at tomorrow’s prices.
I note that our concern of escalating build prices was a factor in dropping the GPS retail investors LVRs to 65%. We want to ensure that sufficient funds to complete all projects are held, even if there are increased construction costs.
Rising build prices and increased sales volumes from what I call the ‘COVID property adjustment’ has also seen several developers approach GPS to bring forward the next stage of their development. They want to lock in their construction cost and maintain their traction in sales.
The flexibility GPS can provide has assisted us in meeting the expectations of these borrowers. We all like further stages of proven projects.
The banks’ changed lending conditions have seen them move away from land hold transactions for developers. Developers were previously able to fund the site acquisition and hold the property while finalizing approvals, build prices etc. on a residential investment loan from the banks at an 80% LVR on a very competitive interest rate.
GPS has adapted to assist our borrowers. We lend on much reduced LVRs. I like these loans as it allows GPS to lock in the construction lending for those projects.
Thank you for your patience and continuing support over the last financial year. It is truly appreciated.
The team at GPS hopes to reward you over the next financial year with a range of high quality projects and our expected high service levels.
Richard Woodhead | Managing Director