It is interesting out there.
If you simply looked at the number of loans in our loan pipeline you would expect the team to say that we have too much to handle. This isn’t the reality.
While the GPS model of requiring no/lower pre-sales, and relationship lending is in favour, there are several other factors in play.
We are seeing loans settle slower due to delays in build times. This slows our velocity of lending, as the monies must come back before we can relend them. This has limited how many new projects we take on at any one time.
It is also more difficult to get projects started. For developers/builders there is the chicken-and-egg issue of gaining enough certainty in the build price, and then ensuring that there are adequate contingencies. As one shifts, so does the other! This requires a lot more “relationship” work to achieve satisfactory comfort levels for developers, builders, and GPS as the funder. It takes time for everyone involved to get comfortable. GPS has worked hard to have such a great base of existing developers and builders, which makes this process easier for us than others.
The delays are only exacerbated by delays from other third parties involved in a project, such as achieving planning approvals, getting valuations and just about every other item in place for construction works to commence.
I remain comfortable in the GPS niche in the market. While things are slower than normal, they are not drying up. GPS continues to bring new loans onboard through our strong existing relationships and our willingness to work with borrowers in these tricky times without compromising our standards.
I expect that the big end of the residential development industry still has more pain to come, with fewer new projects starting in Southeast Queensland. This should heighten what I believe to be the upcoming under supply of new residential development projects.
There also doesn’t appear to be many smaller new projects starting. The smaller builders appear to have been heavily impacted by building material delays. Developers of smaller projects are telling me that they are struggling to find viable projects.
These industry changes are not a cause for concern when it comes to the GPS pipeline.
GPS has adapted to the market conditions, as always. I haven’t seen an application for a residual stock facility for some time. Indeed, I would question why anyone has available new stock with the present velocity of sales. One report to me (unverified) is that there are only about 50 new apartments now listed for sale in Brisbane!
It appears that the banks have restricted site acquisition funding. GPS will consider such funding provided that the exit strategy includes a GPS funded construction facility.
I am also hearing that the banks have a reduced appetite for new funding and are focused on looking after their “premium” clients. I have never worked out whether they use “premium” as a reference to the best of the best, or the ones where they charge one.
While I continue to be comfortable with the market, there is a level of increased monitoring and adapting. I see it as a time to look after the funds we have under management and to not look at any substantial expansion. New funds being raised at GPS are presently set at keeping up with building prices.
Our preferred lending remains for residential development projects (units and townhouses), in Southeast Queensland for loan sizes between $5M and $20M. When building costs and sale prices stabilize, I will be able to redefine the upper limit.
Of course, GPS will look at smaller loan sizes for the right project and borrower.
Overall, while things seem slower, GPS is adapting and the pipeline remains full of options.
Richard Woodhead | Managing Director