How Australia’s new unfair contract regulations help protect small developers

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Written by David Lovato – CPC Development Lending Solutions

December 2023

 

Effective from 9 November 2023, the Australian Consumer Law has been updated to prohibit unfair terms in standard-form contracts. Thanks to these changes, small business owners, including property developers, will be better protected against predatory lending practices. 

Understanding the changes

An unfair term is one that:

  • Creates a significant imbalance in the parties’ rights and obligations.
  • Is not necessary to protect the legitimate interests of the party advantaged by the term.
  • Would cause detriment (financial or otherwise) to a small business if it were to be applied or relied upon.

In the context of property development financing, this means that small developers will be shielded from terms that could, for instance, impose excessive interest rates or default charges that are disproportionate to the lender’s actual costs.

Previously, the courts could declare such terms void but could not penalise lenders for including them in contracts. 

However, under the new changes, businesses could face penalties up to the greater of:

  • $50 million
  • Three times the value of the benefit obtained, or 
  • 30% of the business’s turnover in the relevant period. 

Additionally, individuals, including company directors, could also face penalties of up to $2.5 million. 

This substantial financial disincentive is expected to encourage lenders to review and amend their standard form contracts to ensure compliance​​.

The definition of a small business has also been broadened. 

Any business with fewer than 100 employees or an annual turnover of less than $10 million is afforded these protections, which apply regardless of the contract’s value. This expanded scope means that more small property developers will benefit from the protections against unfair contract terms.

What this means for you

In practice, this means a more level playing field for small developers seeking loans. 

That’s because terms that once might have been buried in the fine print, like unfair interest rates or default charges, could now cost a lender dearly if they’re deemed to be taking advantage of a small business’ lack of bargaining power.

As a result, you can now have greater confidence when entering into loan agreements. Lenders will likely be more cautious and fair in their dealings, knowing that the cost of including unfair terms can be prohibitively high.

Tips for small developers

While these changes offer a new level of protection, it’s still important for you to be vigilant when signing contracts. 

This means:

  • Reviewing contracts carefully: Always take the time to read and understand the terms of any loan agreement. 
  • Seeking legal advice: If you’re unsure about any terms, it’s wise to consult with a legal professional.
  • Understanding your rights: Familiarise yourself with the Australian Consumer Law and the specific changes regarding unfair contract terms.

Finally, a knowledgeable finance broker who specialises in property development finance, such as Crowd Property Capital, can provide invaluable assistance when trying to get your project funded. 

A good broker can help you understand the complexities of loan agreements, guiding you through the terms to ensure they are fair and do not exploit your position as a small developer.

They can also help negotiate better terms and identify the most suitable lenders who adhere to ethical lending practices.

Crowd Property Capital is a property development finance specialist. We help property developers overcome their funding challenges by sourcing loans for land, construction and residual stock. Contact us at [email protected] or fill in this form. 

Lender in focus: LSH Credit

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Written by David Lovato – CPC Development Lending Solutions

October 2023

When it comes to property development, every detail counts, and that includes your choice of lender. 

Enter LSH Credit, which specialises in providing finance for completed residential properties. While they typically offer loans of up to $5 million, they are open to considering deals above this threshold on a case-by-case basis, albeit with lower loan-to-value ratios (LVRs).

In this second ‘lender in focus’ article, we’ll shed light on LSH Credit’s unique offerings and why they could be the finance partner you’ve been searching for.

What makes them different?

What sets LSH Credit apart from the crowd is its commitment to transparency and ethics. This means you needn’t worry about hidden clauses, mysterious charges, or unwelcome interest rate surprises.

They also aren’t reliant on external investors but rather lend off their balance sheet with rates starting from the mid-8s on a 12-month term, alongside a 1% net establishment fee.

What’s their credit policy like?

For property developers considering LSH Credit, there are some key criteria to keep in mind. 

Firstly, they are generally willing to finance up to 65% LVR in the metropolitan areas of Melbourne, Sydney, and Brisbane. While they steer clear of construction and land bank deals, they will consider cash outs, refinances, residual stock, and acquisitions.

To apply, you’ll need a profit and loss statement and balance sheet spanning two years for profiling purposes. They also want to see a six-month business transaction statement to ensure ongoing business activity.

A streamlined application and assessment process

LSH Credit believes in upfront due diligence to minimise surprises. 

Term sheets are typically issued within 1-3 days, and formal approvals range from 1-5 days, depending on the deal’s size. 

Their assessment process focuses on the sponsor’s assets and background, the security’s location and quality, and the exit strategy for repayment.

Why choose LSH Credit?

Three key reasons stand out. 

LSH Credit:

  • Offer transparency and simplicity in their lending approach
  • Assess your application on its merits, rather than a one-size-fits-all approach.
  • Work closely with their existing borrowers, so can provide ongoing support throughout your property development journey

LSH Credit is a lender that ticks a lot of boxes; however, they may not be the right fit for you as a borrower. CPC has access to many lenders like LSH, so we can find you the right lender for your situation. 

Looking to get your property development project off the ground? CPC works with a broad range of lenders so can help you overcome any funding challenges. To confidentially discuss your options, contact David Lovato on +61 434 932 634 or [email protected].

 

Lender in focus: Jadig Finance

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Written by David Lovato – CPC Development Lending Solutions

September 2023

As property developers, choosing the right financial partner can mean the difference between your project’s success or its stagnation. But navigating Australia’s crowded finance marketplace can be a complex and overwhelming task.  

To help, CPC Development Lending Solutions is profiling some of our lenders so you can understand what each brings to the table.

First up is Jadig Finance, a lender that specialises in financing projects below the $20 million mark. This includes everything from senior and mezzanine debt for site and development finance to property-backed investment lending. 

What makes them different?

As a family business, Jadig Finance puts a strong emphasis on transparency and building lasting relationships. So instead of viewing your project as a mere business deal, they are genuinely invested in your project’s success, setting the stage for a mutually beneficial partnership that delivers solid results.

This is a lender that, quite literally, takes business personally. 

As a result, they pride themselves on their flexible, pragmatic approach, which means they can offer bespoke funding solutions even in challenging scenarios. Thanks to their asset-class agnostic stance, they’re open to a broader range of projects, assessing each on its merits, rather than checklist criteria.

Speaking of which, Jadig Finance offers a credit policy that’s both transparent and respectful. Their experience-driven approach cultivates partnerships built on trust. 

Finally, we all know that, in property development, time is money. Recognising this, Jadig Finance has streamlined its assessment process, with most applications turnaround within 48 hours.

A final word

While Jadig Finance offers a compelling proposition, they won’t be the perfect fit for everyone as different clients have different needs. As such, there are scenarios where other lenders may be more appropriate. This is why CPC works with a broad range of lenders as it means our clients have access to lending solutions tailored to their unique requirements and project specifications.

To confidentially discuss your options, contact David Lovato on +61 434 932 634 or [email protected].

 

How property developers can avoid collaborating with builders on the brink

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Written by David Lovato – CPC Development Lending Solutions

August 2023

 

Recent statistics from ASIC, the financial services regulator, show over 2000 Australian construction companies went into liquidation since mid-2021. That averages out to more than two companies every day. 

And it’s not just fledgling enterprises either, with notable names like Porter Davis Homes Group, Probuild, ABG Group and Condev among the casualties.

Australian Constructors Association (ACA) chief executive Jon Davis said the industry was in deep trouble, with firms entering administration at more than twice the rate of other sectors. 

“Building sector profit margins have fallen from around 3% to below 1% and liquidity has collapsed from 15% to below 5%. Most concerningly, over half of all large builders are now carrying current liabilities in excess of current assets— a technical definition of insolvency,” he said. 

“The building industry is a textbook example of market failure.”

Given this, you might be wondering if there is anything you can do to avoid working with a builder who might go bust during the project. 

Well, while nothing is ever guaranteed, there are steps you can take to minimise risk

1. Do your due diligence

Before signing on any dotted line, conduct a thorough background check on the potential builder. Investigate their trading history, past projects, and any media coverage. A simple online search can reveal a wealth of information, including any red flags or controversies. 

2. Run credit checks 

You can investigate a builder’s payment history with suppliers and subcontractors by getting a report from credit agencies, such as Equifax, illion and Experian. Delayed payments or defaults are often an early warning sign of financial trouble.

3. Talk to previous clients

Nothing beats talking to others who’ve worked with the builder. Ask them candidly about their experience. Were there any delays? How did they handle problems? Would they hire them again? This can give you a real insight into how the builder operates.

4. Avoid lowest-bid temptations

While it can be tempting to choose the cheapest bid, this might mean compromising on quality and reliability. Balance the cost with other factors like experience, reputation, and financial stability.

5. Assess their supply chain strength

 A builder’s financial health isn’t only about their immediate finances. If they’re reliant on a supply chain that’s struggling, it could affect your project. Ask about their suppliers, their payment terms, and any contingencies in place for disruptions.

6. Understand their business model 

A builder’s business model should be sustainable and not overly reliant on one or two large projects or clients. Diversification in projects and clientele often indicates a more resilient business.

7. Don’t pay upfront

To reduce financial risks, set clear milestones for payments rather than large upfront sums. This ensures you’re paying for completed work and provides an incentive for the builder to maintain timelines.

8. Build long-term relationships

Foster long-term relationships with trusted builders. As you collaborate on multiple projects, you’ll get a better sense of their reliability and financial stability. This familiarity can act as a buffer against potential risks.

9. Consult with experts 

Last, but by no means least, engage with professionals who have their finger on the pulse. As a broker specialising in developer loans, Crowd Property Capital can offer you valuable advice on financial risk management.

CPC Development Lending Solutions can help you get your next project funded. To confidentially discuss your options, contact David Lovato on +61 434 932 634 or [email protected].

 

Fast-tracked planning approval pathways in NSW

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Written by David Lovato – CPC Development Lending Solutions

July 2023

 

Greater Sydney is in the midst of a housing supply crisis, with the city facing a projected shortfall of 134,000 dwellings over the next five years. 

To tackle this, the NSW government is reforming the planning system so that it incentivises developers to build affordable, high-density housing.

Under the changes, housing developments valued at more than $75m, which include a minimum of 15% affordable housing, will gain access to a new State Significant Development pathway, meaning planning decisions will be made faster.

Developers will also be able to build 30% higher and add 30% to the floor space to land size ratio than local environment plans allow, as this fast-tracked planning pathway pulls the approval process out of the local council’s control.

But what about smaller projects? 

After all, getting local council planning approval for a development project can be a complicated, expensive and time-consuming process, regardless of its size, as:

  • Every council has different local planning rules and regulations
  • Every council interprets statewide planning laws in its own way

Fortunately, the Low Rise Housing Diversity Code (formerly known as the Low-Rise Medium Density Housing Code) can be used to ‘sidestep’ the local development pathway.

Here is how it works. 

A fast-track approval pathway

The Low Rise Housing Diversity Code was introduced by the state government to promote the construction of diverse and affordable housing options in low-rise residential areas.

It does this by creating a fast-track approval pathway for the following property types:

  • Dual occupancies
  • Terraces
  • Manor houses

This means that as long as the proposal complies with the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008, you can receive approval in as little as 20 days, giving you planning timeframe and outcome certainty. 

What do you need to know about the code?

The code applies to eligible residential lots located in areas zoned:

  • R1 (general residential)
  • R2 (low-density Residential)
  • R3 (medium-density residential)
  • RU5 (village)

These areas generally consist of established neighbourhoods and urban environments where low-rise housing can be integrated seamlessly. 

Some exclusions do apply though, including:

  • State or locally-listed heritage items and heritage conservation areas
  • Land reserved for public purposes 
  • Environmentally sensitive areas.

Housing types under the Code

As mentioned, the Code allows for the fast-tracking of dual occupancies, terraces, and manor houses. 

Dual occupancies refer to two separate dwellings located on the same lot, that can be attached or detached. 

Terraces allow for up to three dwellings on a single lot. These dwellings must front a public road, with no other dwellings located above or below.

A manor house is a building containing between three and four dwellings that is up to two storeys in height (excluding any basement). Each dwelling is attached by a common wall or floor with at least one dwelling fully or partially located above another dwelling.

Lot sizes and development standards

To comply with the code, proposed developments need to meet the minimum lot size requirements:

  • Dual occupancy – the size of the lot being developed must meet the minimum lot size required to build a dual occupancy under the relevant council’s local environmental plan (LEP). If the LEP does not specify a minimum lot size, the Code applies a minimum 400m2 lot size.
  • Manor houses – a minimum 600m2 lot size requirement applies.
  • Terraces – the size of the lot being developed must meet the minimum lot size required to build multi-dwelling housing under the relevant council’s LEP. If the LEP does not specify a minimum lot size, the Code applies a minimum 600m2 lot size.

There are also specific criteria related to building design, setbacks, landscaping, privacy, and parking.

CPC Development Lending Solutions can help you get your next project funded. To confidentially discuss your options, contact David Lovato on +61 434 932 634 or [email protected].

 

 

Developers shelve projects as construction costs soar

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Written by David Lovato – CPC Development Lending Solutions

June 2023

 

Another month, another 25 basis point rate hike from the Reserve Bank of Australia – with the latest move taking the official interest rate to an 11-year high of 4.10%.

It’s not just homeowners who are feeling the pain from higher interest rates; property developers and homebuilders are too, leading to a massive slowdown in construction levels.   

For instance, Australian Bureau of Statistics data showed building approvals hit an 11-year low in April, after total dwelling approvals fell 8.1% over the month, following a 1.0% drop in March. 

Multi-unit approvals fell to just 3,469 – 35.4% fewer than the same time last year.  

The slowing rate of construction comes at a time when many capital cities are already grappling with a housing supply crunch that’s driven vacancy rates close to record lows. 

It gets worse. 

That’s because the RBA’s interest rate rises haven’t happened in isolation; rather, they’ve occurred amid a 30% surge in residential construction costs during the two years to March 2023, according to KPMG Australia. 

This, in turn, has led to an increasing number of projects being put on hold, despite already gaining planning approval.

KPMG’s analysis found almost 16,400 dwellings in New South Wales were approved but not yet commenced by the end of March, up from 13,800 at the same time last year.

As the graph below shows, the last time there was such a vast backlog of paused construction projects with approvals was in 2019. However, back then, developers in Sydney were hitting the brakes due to a historically high vacancy rate of 3.5%. 

By contrast, Sydney’s vacancy rate was just 1.1% in May, according to Domain. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Similarly, in Victoria, almost 10,500 dwellings were approved but construction had not yet commenced by the end of March, the highest number of stalled projects since December 2017.

KPMG urban economist, Terry Rawnsley, said around three-quarters of the not-yet-commenced dwellings in New South Wales and Victoria were slated to be apartments or townhouses.

“Both Victoria and New South Wales have increased demand for new dwelling approvals, but dwellings are far from materialising, due to significantly higher input costs,” he said. 

Managing cost overruns in development finance 

There’s no doubt skyrocketing prices, as well as material and labour shortages, are making the development environment particularly challenging. 

So you may be wondering if there’s anything you can do to avoid costs spiralling out of control on your project.

Well, in many cases, prevention is better than cure. 

That means: 

  • Estimating costs accurately: Don’t be tempted to use a one-size-fits-all approach. Rather, do your due diligence in the planning phase to create a realistic budget.
  • Planning for surprises: Identify and assess risks that could lead to cost overruns, and develop a risk management plan with contingency funds.
  • Clearly defining project scope: Changes in project scope are a common cause of cost overruns. So use a robust change order control process that includes assessing the impact of proposed changes on cost, schedule, and quality before approving them. 
  • Tracking your budget: Monitor your project progress and costs regularly. This includes comparing actual costs against the budget, tracking project milestones, and promptly addressing any deviations.
  • Contingency planning: Allocating contingency funds in the project budget to account for unforeseen expenses. The contingency amount should be based on a realistic assessment of potential risks and should be managed carefully throughout the project.

Crowd Property Capital is a property development finance specialist. We help property developers overcome their funding challenges by sourcing loans for land, construction and residual stock. Contact us at [email protected] or fill in this form.

 

Resetting the NSW building industry

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Written by David Lovato – CPC Development Lending Solutions

June 2023

 

The New South Wales building regulation landscape significantly changed when David Chandler was appointed as the state’s inaugural building commissioner in 2019. 

Mr Chandler was tasked with improving the quality of residential apartment buildings and restoring public trust in the industry following the Opal Tower and Mascot Towers incidents. 

This is being achieved through the Construct NSW strategy, which focuses on six key areas for reform:

  • Protecting homebuyers from defective building work through legislation
  • Developing a rating system to make it easier for homeowners to identify trustworthy practitioners 
  • Upskilling the building and construction industry
  • Strengthening standard contracts used in the industry by clearly outlining the roles and responsibilities of all practitioners
  • Using digital platforms to improve transparency and communications between the government, the building sector and the community
  • Conducting research and collecting data about the state of the industry, its capabilities and areas for change

Key reforms so far

In 2020, two major laws were passed by the state parliament:

The RAB Act gives the NSW Building Commissioner sweeping powers to enter a construction site and issue a:

  • Prohibition order: This prohibits the issue of an occupation certificate and/or the registration of a strata plan for a residential apartment building
  • Stop work order: This prevents a developer from continuing work
  • Building work rectification order: This requires a developer to carry out or refrain from carrying out building work to eliminate, minimise or remediate a serious or potential serious defect

Meanwhile, the DB Act requires designers, engineers and builders working on new residential apartment buildings in NSW to declare the compliance of their work with the Building Code of Australia. In doing so, it imposes a duty of care meaning that current and future owners can make a claim against them if they act negligently. 

When the RAB and the DB Act came into effect in 2020 they applied only for apartment buildings. However, from 1 July 2023, both Acts are being bolstered to include other types of buildings where people live and work, such as shared accommodation, hostels, boarding houses and residential aged care.

The NSW government also released the Independent Construction Industry Rating Tool (iCIRT). This uses a five-star system to rate builders on their apartment build to help homebuyers find a “trustworthy” developer.

Reforms in the pipeline 

It’s no secret that a perfect storm is wreaking havoc on Australia’s construction industry with companies failing amid challenging conditions. 

As such, the next phase of the NSW building reforms will look at reducing insolvency risks and improving outcomes for consumers by:

  • Establishing clear lines of responsibility and end-to-end accountability – for example, by developing new contract terms where developers may indemnify consultants and builders for some work done by prior developers and others to ensure clear continuing accountability.
  • Promoting active project governance, monitoring and risk identification
  • Addressing insolvency risks through proper financial due diligence 
  • Requiring completion undertakings and securities in most of these procurement models from financiers, developers, and/or receiver managers.

Crowd Property Capital is a property development finance specialist. We help property developers overcome their funding challenges by sourcing loans for land, construction and residual stock. Contact us at [email protected] or fill in this form.

 

Non-Bank Lending Jargon Explained

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Written by David Lovato September  2021

 

National “Drop the Jargon Day” for the healthcare industry is on Tuesday 20th October so here’s some meanings around jargon that exist within the non-bank lending space.

 

Working in development finance you come across many personalities and a lot of ego’s. Eliminating jargon actually makes you appear more intelligent than less.  For now we need to live with jargon so here’s a cheat sheet of terms used in our industry.

 

The bottom line is no one knows everything so when someone tries to bamboozle you with industry jargon ask them to explain what they mean.

 

Download the CPC Lending Guide by clicking below for more insights into the non-bank lending space for development projects.

 

CPC Lending Guide Download

 

 

Non-bank lending guide jargon

 

 

 

 

 

HOW WE PROVIDE VALUE TO OUR DEVELOPER CLIENTS

CPC Development Lending Solutions secures market leading finance on behalf of developers – we get projects funded.

Working closely with our clients we are that new set of eyes that stress test your feasibility and project assumptions around revenue and costs.

We examine presales targets, project delivery team, transaction structure, funding request and timings. This allows your project to be presented professionally and takes it to the front of the queue leveraging off our strong non-bank lending relationships.

Engaging with CPC allows you to focus on managing your project and driving your consultant team. If you are looking to break ground in 2022 get in touch now. Its never too early.

For more information about CPC Development Lending Solutions check out our FAQ page 

To confidentially discuss your bespoke funding solution contact us today on email [email protected] or phone +61 434 932 634

5 Key Metrics Private Lenders are focused on during the COVID Pandemic

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August 2021

 

These are unprecedented times with no one  able to predict the future, CPC has summarised 5 of the key metrics private lenders are currently focusing on to ensure they are investing in the right projects suitable to the current climate. To ensure you can secure funding for your next project look at these metrics closely and see how your project stacks up.

Metric 1 – DEVELOPER EXPERIENCE

Private lenders want to partner with experienced developers who have cut their teeth on past projects and learnt from their mistakes and experience. They are ready to back project sponsors who can demonstrate its not their first project and have runs on the board.

Metric 2 – PROJECT LOCATION

Middle ring suburbs with median price points, close to the CBD, excellent existing infrastructure (not promised). With foreign buyers are temporarily out of the local market and immigration suspended there is a renewed focus on a local catchment and established suburbs that have had recent gentrification and infrastructure investment. Locations that appeal to families, downsizers, retirees are strongly preferred by lenders.

Metric 3 – PROJECT SIZE

Lenders are spreading risk by project diversification. A loan book with more projects at a lower investment value per project  is much more attractive than a loan book with the same FUM made up of one or two large projects. Smaller boutique style projects make a lot of sense to lenders, less stock to shift, more competitive build environment and generally less project risk. If your project is from 2 to 15 dwellings you are more likely to get funding and your project started sooner.

Metric 4 – DEVELOPER EQUITY

Key loan to value ratios have shifted post COVID-19. Senior debt secured by 1st mortgage remains the focus for quality stable lenders. Generally lenders will require developers to put more equity into projects upfront, GRV around 65-70% is current senior. Mezz is available but is still expensive.  Developers also need to ensure they are not to heavily reliant on cash flow from other project completions.

Metric 5 – PRE SALES

Lenders will typically favour projects that have exiting pre sales purely due to the potential impact of COVID-19 on property prices. Having presales also proves to a lender you have a sales process in place that is delivering in these challenging times. Sales revenue remains one of the biggest risks to all projects moving forward.

 

OUR PROCESSESS

CPC Development Lending Solutions secures market leading finance on your behalf – we get projects funded.

Working closely with our developer clients we are that new set of eyes that stress test your feasibility and project assumptions around revenue and costs.

We examine presales targets, project delivery team, transaction structure, funding request and timings. This allows your project to be presented professionally and takes it to the front of the queue leveraging off our strong non bank lending relationships.

Engaging CPC allows you to focus on managing your project and driving your consultant team. If you are looking to break ground in 2022 get in touch now. Its never too early.

For more information about CPC Development Lending Solutions check out our FAQ page 

To confidentially discuss your bespoke funding solution contact us today on email [email protected] or phone +61 434 932 634

 

 

 

Breaking Ground in 2022? Start your development funding journey now!

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June 2021

I always get asked by developers when should I start seeking construction funding for my project? Every time my answer is – As early as possible!

Its never too early to be seeking finance  in this current climate and this is why.

Our industry like many others is going thru a COVID related shift. Development professionals (architects, engineers, valuers, QS, lenders) are choosing to work more remotely from home, taking on more work and perhaps not working as efficiently as before. This remote working shift may ultimately become more streamlined as technology and management mindsets change – but we are not there yet.

Currently property industry businesses are finding it hard to onboard and employ additional staff. As demand increases processes and reports are taking longer to finalise. For example lending valuation report timeframes have recently doubled from normally 3-4 weeks to now 6-8 weeks. Some companies are refusing new work as they struggle to keep up.

The bottom line is to expect longer lead-in times to get your project commenced. Try to de-risk all aspects of your project that you have control over. The earlier you start the important process of securing project funding the better off you’ll be. You might not have your DA approved, appointed a selling agent or engaged your preferred builder – it doesn’t matter, its never too early.

 

Get in touch now and get your journey started.

 

David Lovato 

Managing Director

CPC Development Lending Solutions

M +61 434 932 634

E [email protected]

W crowdpropertycapital.com.au

 

OUR PROCESSESS

CPC Development Lending Solutions secures market leading finance on your behalf – we get projects funded.

Working closely with our developer clients we are that new set of eyes that stress test your feasibility and project assumptions around revenue and costs.

We examine presales targets, project delivery team, transaction structure, funding request and timings. This allows your project to be presented professionally and takes it to the front of the queue leveraging off our strong non bank lending relationships.

Engaging CPC allows you to focus on managing your project and driving your consultant team. If you are looking to break ground in 2022 get in touch now. Its never too early.

For more information about CPC Development Lending Solutions check out our FAQ page