GPS is heading into a transitional period with a large number of loans repaying and the settlement of, hopefully, enough loans to maintain usage of all funds under management.
Accordingly, all of us at GPS will be very busy for the rest of 2018.
Late last year I expressed that GPS must exercise caution as I could see that the residential market was going to change. The heat had to come out of the southern markets and oversupply of some segments of the Brisbane market needed absorption time.
I slowed down the lending rate at GPS as I could see that average loan terms would increase.
I also looked at different segments of the residential market, which remained under-supplied.
You will have seen with recent offerings, that there is now a wider geographical spread and more townhouse developments.
While I am not completely off the unit market, it now takes quite a bit more to get my attention, such as lower Loan to Value Ratios (LVR), presales, bespoke areas, etc. An example is the Huon Ascot loan, which is a circa 60% LVR in an undeveloped pocket of Ascot surrounded by the upgrades to the racecourses.
GPS continues to develop its lending product to attract quality projects. This has enabled GPS to secure the funding of a multi-stage townhouse development at 57 Station Road, Bethania. One of the guarantors is a repeat GPS borrower (Bilyana Street, Balmoral) and the other is a long term client of one of the GPS directors in his time as a banker.
When preparing the Supplementary Product Disclosure Statement for this loan, we are required to look at the total cost of the three stages and use this for the LVR calculation. I expect that as the project progresses the presales from the first stage (stage three) will settle before the all works in stages four and five have been completed.
The proceeds will be rolled back into the loan, reducing the peak debt to around $8.3 million. This also reduces the effective LVR.
Should you have any queries as to how funding of a multi-stage development works, then please give us a call. It is very important to us that investors are comfortable with their investments.
GPS will use the current credit crunch for residential development to continue to improve quality rather than quantity of loans.
While we are under some pressure to fund new loans to fill the repaying loans, we will not diverge from our proven model of only lending because we want to lend and not because we have to lend.