Over the past couple of months, we have seen a continued growth in the Non-Bank / Private Finance market in the Property market in general and particularly in the Construction Finance realm.
Due to the large number of applications the Non-Banks are seeing, we continue to experience that they are relying on existing relationships as the first layer of deal assessment. In other words, if a Non-Bank needs to assess 10 transactions on the same day, a transaction that is well packaged and comes from a trusted broker or long-term client, then it will be treated with preference compared to a transaction that comes from an unknown party. This is purely a result of the number of transactions the Non-Banks are seeing. There are literally more quality transactions than most Non-Banks have money for, so all other things being equal, the ones that come from “friendly parties” will get the nod more often than not.
As a result of the above reliance on existing relationships, the Non-Banks are almost acting like the banks used to in times gone by where you could pick up the phone, have a conversation with your bank manager and at the end of that phone conversation you will have a pretty good idea whether they will fund your project.
The Banks on the other hand now have a clearer idea on how they will handle the increased pressure from APRA. Some clear guidelines are starting to come out of the banks, these might not be exactly what Developers want, but at least it is good to know what the banks can and cannot do. When the APRA changes initially came in, many of the banks were not sure exactly what they could and could not do.
A couple of recent examples:
- One of the Major Banks launched a “No Pre-Sales” Construction Finance product. Yes, the LVR is very low at 45% of end value, but there is some certainty and you can always add some subordinated debt to increase the Project Debt to a more respectable level.
- Most of the Majors are pretty keen to consider Construction Finance for Commercial Properties. This is a reflection of the current market and there will be some real opportunities over the following months for good quality Construction Finance from the banks for Commercial Property Projects.
Lastly, the market for good quality experienced sponsors is still great, whether you look at Banks or Non-Banks. The age-old saying remains true and trusted “if you follow a good Developer, you can trust him/her to make good choices regarding product and location”
As always, feel free to contact us for a no-obligation assessment of the Construction Finance options for your next Project.