The residential construction lending market remains very buoyant for operators like GPS at the present time. Reassessment by the banks (or whatever other jargon they choose to use) has resulted in an influx of applications. One of my (many) sayings is while banks reject deals for the wrong reasons, GPS does deals for the right reasons. While operators like GPS will step up, we will only fill a very small part of the void. The first question I now ask potential borrowers is “which bank has mucked you about”?
GPS now has an extremely strong and full loan pipeline. Our current focus is on raising additional funds so as to be able to write more of these loans.
Projects funded by GPS are seeing exceptional sales rates as marketers move away from pre-construction selling. This move is due to prospective purchasers being unable to obtain unconditional finance. The vast majority of sales are to Australian residents, and I personally continue to be surprised by the high level of sales to owner occupiers. The popularity of smaller units and townhouse complexes, the type of projects funded by GPS, is on the rise.
Media speculation as to a property bubble should be referenced to the “hot” markets of Sydney and Melbourne. In Brisbane (where GPS lends) we have not seen any dramatic price increases. As can be seen in the graph on the below, from a recent report from CoreLogic, Brisbane is trailing far behind the increases witnessed in Sydney and Melbourne over the last few years.
Consequently, developers in Brisbane have noted a significant increase in buyers from Sydney. These buyers are flocking to the Queensland capital to escape the high prices of other cities, and developers are benefiting from this price gap.
Recent media has commented on the current “crane index” in Brisbane. Unfortunately, they have not discounted this figure due to developments in crane technology.
I have seen a proliferation of cranes on GPS funded projects in the last couple of years. This is due to the cost of the fixed crane being substantially reduced; they are now smaller, lighter and (mostly) manufactured in China. This new breed of crane is operated remotely by a single person (no need for a dogman) and generates further efficiency with reduced need for traffic control, no need to set up and pull down mobile cranes, and an expanded lifting capacity. Cranes are no longer the domain of high-rise construction. This should be born in mind when using the “crane index” as an indication of the construction market.
In a recent article in The Australian by Alan Kohler “someone named George” explains why businesses are scared of the banks. In his commentary, the mysterious George really hits the nail on the head as to why borrowers come to GPS for loans when he says, “banks don’t want to lend to businesses and businesses don’t want to borrow from banks for fear of what they might do”.
Work by APRA on banks’ capital requirements and risk loading is reducing the pipeline for new projects, as they are unable to obtain finance. There has been a definitive shift away from investor lending and towards owner occupiers, as these loans are deemed “less risky”. APRA’s data indicates that the industry is officially complying with the regulator’s 10 per cent speed limit for investor lending put in place last December.
The banks are showing little to no interest in businesses, particularly SMEs, and businesses are returning the sentiment. As a business you can never be sure what is around the corner, and the last thing you need is the fear of what the bank might do if what is around the corner is difficult.
A survey by research house East and Richards showed that SMEs had a loyalty rating towards the banks of 11.2. This is on a scale of 10 (not loyal) to 100 (very loyal). It appears that bank’s relationship managers might not be doing a very good job.
GPS works together with borrowers to ensure that if something does go wrong, that a solution is found that suits all involved. We have a vested interest in the project’s success, and work with borrowers to ensure everything goes smoothly for the entire length of the loan.
It is for this particular reason that GPS continues to have its pick of high quality borrowers, and why these borrowers come to GPS instead of the banks. It is also the reason why GPS has consistent repeat business. Not only do Borrowers return, but they refer us to their friends and colleagues. We are a business that thrives on word of mouth, so relationships are important to us.
This is something that banks just do not offer, because as George says in the article, “business are too scared to borrow because what the bank will do if something goes wrong”.
And by George, I think he’s right!