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Should I fix my new rate? How you can capitalise by refinancing in the current rate environment

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Written by David Lovato – CPC Lending Solutions

October 2024

As interest rates have risen sharply over the last two years, the share of non-performing commercial real estate (CRE) loans at banks has increased, according to the Reserve Bank of Australia (RBA).

While this uptick may cause some concern, it’s worth noting that these levels remain low by historical standards. In fact, according to the RBA, “There continues to be little evidence of financial stress among owners of Australian CRE.”

Even in this challenging interest rate environment, now is a prime time to consider refinancing your loans in anticipation of potential interest rate cuts next year.

Interest rates forecast

According to the big four banks, the Australian Securities Exchange (ASX) and many other economists, the RBA is likely to start cutting rates early next year. 

The global economic landscape is already trending downwards. Last month, the US Federal Reserve made its first interest rate cut. This followed several other big economies including the UK, Canada, China and Europe which have also begun their rate-cutting cycles.

And, because Australia typically follows a similar trend to these developed economies, it indicates we are likely nearing the end of the current cycle.

With rates set to ease and economists predicting cuts early next year, now is an ideal time to explore refinancing options. Waiting until the end of the year could leave you scrambling as the market slows during the holiday season, making it more difficult to explore loan options or secure approvals.

Fixed rates or not?

As you review your refinancing options, you’ll need to decide between a fixed-rate mortgage or a variable rate. Currently, some fixed rates are lower than variable rates, which may seem tempting. However, fixing your rate now could prevent you from benefiting when rates are cut further in 2025, as widely expected.

But, fixing rates now could lock you out of potential savings in the near future. If you fix your rate now and the RBA cuts rates multiple times in 2025 – as is expected – you could miss out on the lower payments that variable rates will offer next year.

Some borrowers have already seen potential savings with fixed rates, as some banks have begun lowering their rates (see table summarising lenders offering rates below 5.75%).

However, borrowers should keep in mind the longer-term benefits of not fixing rates.

For developers and investors, there’s a bigger picture. By choosing not to fix now, you’ll maintain the flexibility to adjust your strategy as rates continue to shift downwards, maximising your project’s profitability.

Private credit options

In the real estate sector, the private credit market is growing significantly. Private lenders who have matured over the last several years are actively looking for new sites and projects to finance. According to the RBA, as of July, around 11% of business lending and one-quarter of lending to small businesses was provided by non-bank lenders.

With traditional banks tightening their lending criteria, private lenders may fill that gap as an alternative source of funds for CRE.

Private lenders offer the flexibility and speed to capitalise on opportunities in a softening interest rate environment. Whether you are looking to refinance an existing project, purchase a new site or secure residual stock loans to buy time until rates fall, there are attractive options.

Now is the time to act

Whether you’re a borrower or an investor, now is the moment to explore your refinancing options. If you have an existing loan, refinancing could help you lock in lower interest rates and reduce your monthly repayments.

For developers, the current rate environment also presents an opportunity to invest in new projects. Market conditions are favourable for acquiring sites and starting developments, with the growing private credit market offering flexible and attractive funding options

Additionally, savvy developers can take advantage of residual stock loans, which offer temporary financial relief while planning their next move. These loans help bridge the gap until rates drop further, giving you more time to strategise.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.

 

Why an aggregator matters for your loan application

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Written by David Lovato – CPC Development Lending Solutions

September 2024

Your finance broker is only as good as the lenders they have access to. That’s why aggregators exist, to act as a bridge between your broker and a broad range of lenders. This, in turn, provides you with access to a diverse panel of lenders and their offerings.

What is an aggregator?

An aggregator is an important partner for brokers, as they connect them with a single access point to multiple lenders. Instead of dealing with each lender individually, brokers use an aggregator to explore a variety of loan products, compare rates and stay updated on lender policies.

This saves time in your loan application process and improves your broker’s ability to offer tailored loan solutions that suit your financial circumstances, needs and goals.

Why does a good aggregator make a difference?

When you’re looking for a loan, having a broker backed by a strong aggregator can make all the difference. Here’s why choosing the right one matters for your financial success. 

1. Increases options

With a broader pool of lenders, like the more than 60 offered by the Loan Market Group (LMG), one of Australia’s leading aggregators, you’re not limited to the products and rates offered by one or two lenders. 

As a result, your broker can find the most competitive rates and tailored loan structures that align with your financial requirements.

For example, as the image below shows, LMG offers access to residential and commercial loans from all these lenders. 

Plus, the variety includes both large and small lenders, as well as banks and non-bank lenders. This gives borrowers a much wider range of lenders with varying loan requirements, assessment times and loan types, making it more likely you’ll find the loan to suit your needs.  

An aggregator like LMG also includes options for finance for other needs, like car loans, business loans, or equipment finance. This means you can attend to all your loan services under one roof.

2. Streamlines the process

Submitting applications to several lenders would be very time-consuming and tedious. With the help of an aggregator, you and your broker can efficiently compare offerings from various lenders within a single system, saving you time and streamlining the entire application process.

3. Prioritises security

Cybersecurity is a big concern, particularly in the finance sector. A good aggregator like LMG will be committed to protecting your sensitive information with industry-leading security measures. For instance, at LMG their award-winning InfoSec strategy is built on three pillars:

  • Protecting data: Keeping both brokers’ and clients’ data secure
  • Raising awareness: Fostering a community that understands cybersecurity risks
  • Building trust: Instilling confidence in LMG’s platforms and security measures

As a borrower, the people with whom you share your sensitive information are a big consideration. So it is helpful to know that aggregators like LMG keep cybersecurity at the centre of their service. 

4. Updates regularly

When an aggregator focuses on great technology, their brokers and clients get to stay regularly updated on interest rate changes, new products and lender policies. 

LMG’s platform provides brokers with a continuous stream of real-time information. This means your broker stays informed and up-to-date, allowing you to make quick and accurate decisions, knowing all the options. 

5. Stays transparent and independent

One of the key benefits of working with a leading aggregator like LMG is its independence. Neither LMG nor CPC Lending Solutions are owned or controlled by any of the lenders on the LMG platform. This means we are not pressured to promote specific loan products and the recommendations we make are solely based on your best interests.

In contrast, going directly to a lender limits your options solely to that lender’s products, which may not be a good fit for your needs. With an aggregator, you are more assured of unbiased advice and a broader view of your options. 

 

Download the free 2024 CPC residential lending guide today. This guide will help you make an informed decision by outlining some of the key factors to consider when choosing your next home loan.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.

 

CPC Lending Solutions expands to meet growing demand

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Written by David Lovato – CPC Lending Solutions

August 2024

We are excited to announce some significant changes at CPC Lending Solutions. To better serve our clients and meet the increasing demand for our services, we’re expanding our team and adding a new focus area.

Residential lending in 2024

As we head into the latter half of the year, the residential lending market presents buyers with unique opportunities. While interest rates have been held steady for several months, the overall cost of living remains elevated, putting pressure on borrowers’ budgets.

Despite these challenges, the housing market continues to demonstrate resilience. Strong population growth, coupled with a shortage of supply in many areas, is driving demand for residential properties. This has led to increased competition among buyers and put upward pressure on home prices.

However, many borrowers are finding it difficult to access finance, whether for new or existing homes, due to high interest rates. 

These affordability challenges are also impacting developers. Reported presales during the pre-construction and construction stages of projects are at a high risk of defaults and delays at settlement, or not even settling at all.

That’s why we’ve identified a need for a broker focused on the off-the-plan residential market.  

What’s changing?

As part of our expansion, we’re rebranding to CPC Lending Solutions and welcoming Andrew Wallace, our new Residential Mortgage Specialist. Andrew brings with him a proven track record and a deep understanding of the residential market.

His primary focus will be managing all residential finance enquiries and providing tailored solutions for individuals and families looking for residential mortgages.

At CPC Lending Solutions we offer a wide range of residential mortgage solutions including refinancing, off-the-plan new sales, house and unit purchases and investment property loans.

We’re also addressing a real problem that exists for construction-stage lenders and developers: the settlement risk of off-the-plan pre-sales. Many of these pre-sales are at risk when it comes time to settle due to outdated pre-approvals, changes in buyers’ life circumstances or rising interest rates.

CPC Lending Solutions will assist developers and purchasers in the off-the-plan sales process. We will work with developers to streamline the finance process for purchasers. 

Combining our in-depth knowledge of development with a new focus on residential buyers, we can connect with your off-the-plan buyers to build rapport and assist them in their homeownership journey.

This allows us to identify any risks, secure them a residential loan and ensure they don’t default when given their notice to settle. 

By identifying and mitigating risks associated with pre-sales, we can help developers increase their chances of successful project completion.

Increased competition

As a buyer, not only will you face increased competition for your new property thanks to the current shortage of homes, but you’ll also find many lenders are vying for your business. This competition can work to your advantage, as lenders are more includes to offer attractive terms to secure your loan. But, navigating this process requires time and knowledge.

That’s why we’ve brought Andrew on board, to ensure you benefit from this competitive environment. We offer personalised advice and a good relationship with lenders that we can use to benefit you.

Why choose CPC Lending Solutions?

At CPC Lending Solutions we are in a unique position to offer both residential finance to buyers as well as continue our high-quality finance broking service for developers.

Our new focus on assisting developers with off-the-plan sales is a natural extension of our existing services. We will work closely with you and your buyers for off-the-plan sales. This will allow purchasers to access finance to buy your new builds. With our experience in this field, we can tailor solutions for buyers, including options like deposit bonds, so that buyers secure a property in a competitive market.

For buyers looking for finance for residential property, we have a dedicated team member with in-depth knowledge of the current property and lending environment. He will be able to offer advice, facilitate your application and guide you through the home purchasing process.

Our services are free to borrowers and our brokerage fees are fully disclosed within the loan documentation.

Learn more about our residential mortgage solutions here.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form

New to Residential Lending? Download CPC’s free Residential Lending Guide Now

NSW housing reforms: unlocking opportunities for property developers

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Written by David Lovato – CPC Development Lending Solutions

July 2024

The NSW government’s recent planning reforms, introduced in June 2024, are designed to provide greater housing choices for families needing additional space and for multi-generational households. 

These changes are expected to help retain young people in NSW who might otherwise leave due to housing shortages.

The reforms significantly expand the permissibility of dual occupancies and semi-detached dwellings, providing new opportunities for small developers to undertake profitable projects across the state.

Understanding the reforms

The reforms will: 

  • Expand permissibility: The new reforms permit development applications for dual occupancies (two homes on a single lot) and semi-detached dwellings in a broader range of R2 residential zones. This change affects 124 local government areas across NSW, providing a substantial increase in available development sites​. 
  • Streamline approvals: The reforms aim to streamline the development approval process by enabling more projects to qualify for complying development consent (CDC). This faster approval route bypasses the lengthy council approval process, reducing the time and costs associated with starting a new development.

Certain regions, such as the Hawkesbury, Blue Mountains, and Wollondilly, are excluded due to bushfire and flood risks. Bathurst is also excluded as it lacks suitable R2-zoned land.

Additionally, heritage-listed sites are protected, although developments in heritage conservation areas may proceed if they enhance the area’s heritage value.

Keep in mind that while the state government is driving these reforms, local councils remain the primary assessors of development applications. They are responsible for evaluating these applications based on local planning controls and community needs. 

Key steps for success

To maximise the benefits of these reforms, small developers should adopt a strategic approach. Here are some key steps:

1. Target DA-approved or quick approval sites:

Focus on sites that are either already DA-approved or can quickly gain approval through the CDC. The new reforms have unlocked many such potential sites, making it easier and faster to initiate projects.

2. Extend settlement terms

Purchase sites on extended settlement terms to allow them to be more shovel-ready before settlement. Alternatively, settle within standard timeframes and rent out the existing premises for 3-6 months, generating interim income while preparing for construction.

3. Use an effective builder-developer model:

Adopt a builder-developer model where the builder handles construction and the partner manages finance and planning. This clear division of roles ensures efficient project management and execution.

Then, conduct building works at cost, transferring builder profits to developer profits. This approach helps manage high management and labour costs, ensuring project profitability.

4. Take a single-lender approach 

Secure a bridging loan that transitions into a construction loan. This simplifies the funding process and saves time and money, providing financial stability throughout the project lifecycle.

How CPC can assist

At CPC Development Lending Solutions, we specialise in providing bespoke lending solutions tailored to the unique needs of small developers.

Here’s how we can help:

  • Feasibility studies: Before you purchase a site, we conduct comprehensive feasibility studies to ensure the project’s financial viability. This helps mitigate risks and ensures that the development numbers stack up before securing finance.
  • Bespoke financing solutions: We offer tailored financing options, including bridging loans and construction loans. Our solutions are designed to meet the specific needs of each project, providing flexible terms and competitive rates.
  • Expert guidance: Our team provides expert advice and support throughout the development process. From site acquisition to project completion, we ensure you have the financial backing needed to succeed.

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.

 

Building backlog with 40,000 homes in limbo as high costs and interest rates bite

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Written by David Lovato – CPC Development Lending Solutions

June 2024

The construction of nearly 40,000 homes across Australia has stalled, despite the projects all having the necessary building approvals in place, according to a recent KPMG report.

KPMG’s analysis found that, as of 31 December 2023, over 37,000 dwellings had been approved in Australia but construction had not commenced. This figure represents a 9% increase compared to the previous five-year average. 

This increase is alarming, particularly as Australia grapples with a deepening housing supply crisis, characterised by rising prices and rent.

To make matters worse, the backlog is most acute in high-density dwellings such as townhouses and apartments, which are crucial for delivering housing at scale.

KPMG urban economist Terry Rawnsley said that, in Sydney and Melbourne alone, these types of dwellings constitute approximately 80% of the nearly 18,000 halted projects. 

 “There is always a lag between housing being approved and construction commencing, but current estimates show an abnormal number of dwellings sitting in this category, suggesting other market factors are stalling the pipeline of new builds,” he said.  

Rawnsley noted that Sydney has been particularly hard hit with more than 11,000 projects approved but not yet commenced in the most recent quarter.

“With the pool of newly approved dwellings falling, one might expect the pool of not yet commenced dwellings to be falling too, but it remained steady,” he said. 

Meanwhile, Melbourne had  6,840 dwellings pending as of December, one of its highest figures over the past five years. 

Brisbane and the ACT also reported significant numbers of stalled projects, with:

  • Brisbane seeing an 8% increase over its previous five-year trend
  • The ACT nearly doubling the number of approved but unbuilt dwellings from 864 to 1,772.

Why the stall?

Several factors are contributing to the delay in projects breaking ground. 

Foremost among them are skyrocketing construction costs, even though building materials price growth has levelled off since the pandemic highs.

However, labour and borrowing costs are through the roof with higher interest rates and robust wage demands from trades inflating costs significantly.

Simultaneously, rising interest rates have squeezed potential buyers’ purchasing power, further complicating the market dynamics.

As a result, many projects designed pre-COVID are now financially unfeasible as the cost increases have outpaced potential revenues. This problem is particularly pronounced in areas like western Sydney, a major hub for new housing developments, where new apartment prices are more constrained.

This economic squeeze is prompting developers to either shelve projects indefinitely, creating what Rawnsley terms “zombie approvals,” or to shift focus towards more profitable luxury developments, reducing the number of units in favour of higher returns. 

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.

 

Can modular housing solve Australia’s housing crisis?

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Written by David Lovato – CPC Development Lending Solutions

May 2024

Australia’s soaring home prices and rental rates are increasingly placing housing out of reach for many. 

This crisis is being exacerbated by a growing population and a shortfall in housing supply, which the National Housing Supply and Affordability Council has recently forecast to continue widening in the coming years. 

One potential solution some experts including researchers at the University of South Australia (UNISA) and the University of Melbourne are increasingly championing is modular and prefabricated homes. They argue that this innovative construction approach could potentially transform the housing market by addressing the urgent demand for affordable, high-quality homes. 

Understanding Australia’s housing crisis

The root of Australia’s housing crisis lies in the simple economic principle of supply and demand. Despite the urgent need for more housing, construction rates have not kept pace with demand. 

For instance, building approval numbers in March were close to decade-lows, according to the Australian Bureau of Statistics.    

This shortfall has been attributed to various factors including high construction costs, regulatory barriers, and a shortage of skilled labour. 

Why modular homes could be the answer

Modular homes are constructed in a factory setting and then transported to the building site where they are assembled. This method offers several benefits that could help alleviate the housing crisis:

  • Speed of construction: Modular homes can be constructed much faster than traditional homes. Components are built simultaneously off-site while the foundation is prepared on-site, significantly reducing overall project timelines.
  • Cost-effectiveness: With controlled factory settings, modular construction reduces waste and can be more cost-effective. Bulk materials can be purchased at discounted rates, and the assembly-line process reduces labour costs.
  • Quality and sustainability: Factory settings allow for more controlled construction conditions, which can enhance the quality and durability of homes. Additionally, modular homes often incorporate energy-efficient designs and materials, supporting more sustainable living.
  • Flexibility and scalability: Modular buildings can be easily designed to meet diverse needs, from single-family homes to multi-storey apartment complexes, making them a versatile solution across various market segments.

Weather-independent construction

One of the lesser-discussed advantages of modular homes is their resistance to weather-related delays. 

Weather has been identified as one of the top causes of delays and subsequent cost increases in the building industry, affecting 45% of projects worldwide, according to UNISA. 

Modular construction largely circumvents this issue, as the majority of the building process occurs indoors. UNISA estimated the savings of this weather-independent construction to come in at approximately $40,000 on a build worth $6.4 million.

Financing challenges 

Despite their advantages, financing modular and prefab homes presents unique challenges.

Traditional lenders are often hesitant due to the unconventional nature of the construction method. 

Key issues include:

  • Funding release: Many lenders typically release funds for construction projects in stages, based on on-site progress. However, because a significant portion of a modular home’s construction is completed off-site, these regular progress checks don’t align with traditional funding models.
  • Security concerns: Lenders may also be concerned about the lack of physical collateral during the construction phase, as the property isn’t yet ‘on the land’ it will ultimately occupy.

Creative financing solutions

Fortunately, innovative solutions are emerging to bridge these financing gaps:

  • Amended payment terms: To align with the modular construction process, some lenders will agree to modify their payment terms. This can involve specific agreements to release funds based on different stages of off-site and on-site completion.
  • Using existing assets as security: Developers might use existing property as collateral to secure funding, providing lenders with the needed security to release funds earlier in the construction process.
  • Partnering with modular companies: Some developers and lenders are forming partnerships directly with modular construction companies. These partnerships can include pre-arranged financing agreements that accommodate the unique aspects of modular construction.
  • Specialised financial products: A few forward-thinking financial institutions have begun offering loan products specifically designed for modular construction. These products take into account the unique aspects of modular building, such as faster construction times and different risk profiles.

Engaging with lenders early

If you are considering a modular housing project, engaging with lenders early in the process is crucial. 

Discussing the modular construction model upfront will help lenders understand the process and, potentially, tailor their financial products to better meet your needs. 

Working with a specialist property development finance broker such as Crowd Property Capital can help you find the right lender open to more creative funding solutions.

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.

 

Everything you need to know about NSW’s Transport Oriented Development Program

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Written by David Lovato – CPC Development Lending Solutions

April 2024

New South Wales is grappling with a housing crisis that’s seen demand significantly outstripping supply, leading to skyrocketing property prices and tightening rental vacancy rates.   

This imbalance has made it increasingly difficult for many residents to afford suitable housing, prompting the NSW Government to seek innovative policy solutions. 

One such measure is the Transport Oriented Development (TOD) Program, aimed at increasing housing availability by developing areas around transport hubs.

Understanding the TOD Program

The TOD Program seeks to encourage the development of residential and commercial spaces around transport hubs, like train stations and bus interchanges. 

But it’s about more than just building near train stations; it’s about creating more livable, accessible, and sustainable urban environments. 

As such, the program focuses on two main components:

  • State-led rezonings near priority transport hubs: This involves the development of areas within 1,200 metres of selected transport hubs to maximise the use of public transport and reduce reliance on cars.
  • A new State Environmental Planning Policy (SEPP): Aimed at facilitating more mid-rise housing and mixed-use development within 400 metres of 31 well-located transport hubs and town centres. This policy aims to create denser, more diverse urban environments where people can live close to where they work and play.

The NSW government has identified 8 priority high-growth areas near transport hubs in greater Sydney for accelerated rezoning: 

  • Bankstown
  • Bays West
  • Bella Vista
  • Crows Nest
  • Homebush
  • Hornsby
  • Kellyville
  • Macquarie Park

The eight precincts will be rezoned between September 2024 to November 2024 to fast-track housing in these areas – with the ambitious target of creating capacity for up to 47,800 new homes over 15 years, all within walking distance of these stations.

Additionally, the state government will invest $520 million in community infrastructure within these precincts, such as critical road upgrades, active transport links and good-quality public open spaces. 

Why does it matter for developers?

These reforms present significant opportunities for property developers, including:

  • Increased development opportunities: The program creates more opportunities for new residential and commercial projects by opening up land around transport hubs. 
  • Enhanced marketability: Properties within walking distance of transport options are typically highly attractive to buyers and renters alike. As such, these developments are likely to enjoy higher demand and, potentially, better returns on investment.
  • Streamlined approvals: The program is part of broader planning reforms aiming to simplify and accelerate the development approval process. Faster approvals mean developers can move from concept to construction more quickly

Backlash and concerns

Despite the clear benefits in terms of increased housing supply and more efficient urban planning, the TOD proposals have faced some backlash. Critics argue that increased density could lead to overdevelopment, straining local infrastructure like roads, schools, and green spaces. There is also concern about the potential loss of local character and heritage in some areas, as well as the impact of construction on existing communities.

Residents and some local councils have expressed worries that the ‘one size fits all’ approach may not suit the unique needs and contexts of different suburbs. There are fears that rapid changes could lead to gentrification, pushing out existing residents due to rising property values and rents.

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.

 

Who is responsible for building defects?

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Written by David Lovato – CPC Development Lending Solutions

March 2024

Sydney’s Opal Tower might be the most high-profile case of an apartment block with severe structural problems, but it’s far from being the only one. 

In fact, a recent NSW Building Commission report found that 53% of apartments registered in the state from 2016 to 2022 have had at least one serious defect.

As a property developer, understanding who bears responsibility for building defects is crucial as it helps you manage risks effectively and ensure the project’s success. 

Understanding building defects

Firstly, it’s important to define what constitutes a building defect. 

Generally, it’s any aspect of the building that doesn’t perform to the required standards set out in your building contract, the National Construction Code, or relevant Australian Standards. 

These can range from minor issues like peeling paint, which are more cosmetic, to significant structural failures that can pose safety risks.

The developer’s role

As a developer, you play a pivotal role in the construction process, overseeing the project from conception to completion. 

While you might not be directly involved in the physical construction, you are ultimately responsible for engaging the contractors and professionals who are. 

This means that any defects found can indirectly fall on your shoulders. However, the extent of your responsibility can vary based on contracts, warranties, and the specific circumstances of your case.  

Builders and contractors 

The direct responsibility for correcting defects typically falls to the builders and contractors who carried out the work. 

Under Australian law, builders are required to warrant that their work is free from defects for a certain period — usually around 6 to 7 years for structural defects and 2 years for non-structural defects, depending on the state or territory.

It’s important for you as a developer to have clear, comprehensive contracts with your builders and contractors that outline their obligations regarding defect rectification. This not only ensures clarity but also provides a legal framework for resolving disputes should they arise.

Architect and engineers

Architects and engineers play a critical role in the design and specification of the project. So what happens if a defect is the result of poor design rather than the construction itself? 

Well, in such cases, the responsibility might lie with the engineering and design professionals, who are expected to provide designs that meet regulatory standards and are fit for purpose.

Material suppliers

The quality of materials used in construction also cannot be overlooked. After all, defective or subpar materials can lead to significant issues down the line, from cosmetic flaws to structural failures. 

Suppliers are expected to provide materials that comply with industry standards and specifications. Should a defect arise due to faulty materials, the supplier could be held responsible, again contingent on the terms of their supply agreement.

Dispute resolution

Disagreements over the responsibility for defects can sometimes escalate into disputes. In such cases, mediation and arbitration become important tools for resolution. 

There are also statutory bodies, such as the Building Commission NSW and the Victorian Building Authority, which can offer advice and assistance in resolving disputes over building defects. 

Engaging with these processes can be a constructive way to resolve problems without resorting to lengthy and costly legal battles.

Managing the process

The best approach to dealing with building defects is to mitigate the risks from the start. 

This involves:

  • Selecting reputable builders and contractors: Conduct thorough vetting, check references, and review past projects to ensure they meet your standards.
  • Implementing strict quality controls: Establish clear quality benchmarks and conduct regular inspections throughout the construction process.
  • Maintaining open communication: Foster a culture of transparency and open dialogue with your construction team to quickly address any issues that arise.
  • Understanding your legal obligations: Stay informed about your rights and responsibilities under Australian construction law and ensure all contracts are clear and comprehensive.

For property developers, navigating the complexities of building defects is part and parcel of the development process. 

While the responsibility for rectifying defects primarily lies with builders and contractors, remember you’re not just a bystander in this process. Your role involves orchestrating the various moving parts and ensuring that the project adheres to all regulatory and quality standards. This includes diligent oversight of the work being carried out by your contractors as well as the materials being used.

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.

 

Five things lenders look for in a development finance proposal

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Written by David Lovato – CPC Development Lending Solutions

Jan 2024

 

When a property developer applies for finance, the lender asks themselves one basic question: how likely is the applicant to repay the loan in full and on time?

To answer that question, the lender is going to pay close attention to everything from your financial statements to your exit strategy, so they can get a clear picture of both you and your project.

With that in mind, you and your broker should present your application in a way that makes it easy for the lender to review your scenario and understand its positive features. That will increase your chances of being approved and receiving the most favourable terms.

Here are the five most common things lenders look at with a property development finance application:

1. Your finances

The lender will take a close look at your financial statements, to understand what your financial position is right now and how it’s likely to evolve throughout the process.

You’ll need to prove you’ll have sufficient cashflow to pay your bills throughout the development project and meet your obligations to the lender. As part of that process, you’ll need to provide a feasibility study that lays out all your expenses and income – and, just as importantly, when those transactions are expected to occur.

2. Your project

The lender knows that the more successful your development is, the more likely its loan is to be repaid. So the lender will scrutinise:

  • The location, design and intended use of your development
  • The construction plan and schedule
  • The contractors and materials you plan to use

Naturally, the lender will want to see proof that you’re planning to comply with building, zoning and environmental rules.

The lender will also want to know how much demand your properties are likely to receive from potential buyers. So you’ll need to provide a market analysis; the more detailed and fact-based you make this report, the better it will be received.

You’ll also need to provide a document outlining the project’s potential risks and your plan for responding to them. Don’t make the mistake of omitting risks in an attempt to avoid scaring the lender; instead, be upfront, so you can prove you would be a safe pair of hands if problems occurred during the project.

3. Your exit strategy

To reassure the lender, you will need to explain:

  • How you will repay the loan – will you raise the funds through sales, through refinancing or in some other way?
  • When you will repay the loan – will you make one lump-sum payment at the end of the build or will you make a series of payments?

4. Your track record

As part of its due diligence, the lender will want to know what projects (if any) you’ve completed in the past and how similar they are to this specific proposal.

The more experience and success you can point to, the more creditworthy you’ll appear in the eyes of the lender.

5. Your security

If you were unable to repay the loan, the lender will need to know what recourse it would have.

That includes knowing what assets it could seize, how easy they would be to sell and what their resale value would be.

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.

 

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.