I expect there to be some failures in our industry during 2017.
It will come down to a question of resourcing and asset classes of lending. If you are new to the industry, or have undergone massive growth, then problems will start to slip through. These problems will begin to escalate and infect the loan book. Exposure to some types of lending and end product will be difficult to recover if the market changes.
My father used to say, “old dogs for the hard road, puppies sit on the pavement”. Like many of my father’s sayings, I never really knew where the expression came from. The best that I can come up with is it is an old Irish proverb which translates to “it takes a veteran to do the hard job”. The expression has been instilled into my comprehension and I have now started using it within GPS (much to the annoyance of some staff).
In the current market it would be easy for GPS to grow at an accelerated rate. Loan pipeline is strong due to the pull-back by the banks. Other investment classes do not currently appeal to investors for a variety of reasons.
The veterans (“old dogs”) at GPS have seen it all before, and we have learnt our lessons.
We stick to a sustainable level of funds under management. It is not how much you can handle in the good times, but how much you can handle if the market turns (resourcing both in experience and number).
The first homeowner/investor targeted end product, which constitutes the core lending of GPS, has been a consistent, long-term performer and is what got us through GFC. We have no exposure to land subdivisions, development sites etc, and have no desire to be exposed to such asset classes.
GPS remains open for business for new and additional investment monies, but we have set what we consider to be a sustainable cap of $15 million of new monies during 2017.
In the last newsletter we raised the concept of attracting some direct “wholesale” monies. The concept has been refined and has received good acceptance. In essence, wholesale monies will be used where a borrower requires a residual stock facility at the end of the loan due to sales rates being extended by not being able to achieve presales. Such facilities are not core lending for GPS and can prejudice our funding cashflow. The wholesale funding is more of another tool in our already extensive tool box to assist GPS to get the job done. When it is no longer necessary, it will go back into the cabinet.
Wholesale investors appear to like the product as they presently do not like other investment classes and term deposits are not exactly generous. It works for both GPS and the wholesale investors. Neither of us have any belief it will become a core GPS product. It simply suits the current sector of the property cycle.
Facilities are written for 90 days with a minimum investment amount of $500,000.