Written by David Lovato – CPC Development Lending Solutions

 

What’s the number one key to succeeding with property development?

No, it’s not getting the property side of the equation right – that’s number two. It’s getting the finance right and this starts with your initial loan application.

To get the finance right, you should always think about the strength of your application. Here are five things you should consider before applying :

* Reducing your current debt levels – in this market, lenders are attracted to loans with lover LVRs.

* Ensure your financials are up-to-date – this includes your latest business and personal tax returns.

* Update your CV – showcase your skillset and previous development experience.

* Update your project feasibility – make sure your costs reflect the current market’s increases in consultant fees and construction.

* Present a strong exit strategy – the lender is primarily concerned with how you will repay their loan.

CPC has assisted numerous developers in getting their projects in front of the right lenders. We know how to best present your application to get the best loan available in the marketplace.

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Crowd Property Capital is a property development finance specialist. We help developers obtain finance for their projects. Contact us at [email protected]

 

 

Written by David Lovato – CPC Development Lending Solutions

 

Australia is suffering a housing shortage, with the national vacancy rate just 1.0%, according to SQM Research. To counter this shortage, and to cope with an increasing population and immigration, additional housing is needed. But not enough apartments are being built. 

Property advisory group Charter Keck Kramer estimates that 41,200 apartments will be constructed across the capital cities in 2023. But their estimates for the next two years are much lower:

• 27,300 in 2024 
• 11,100 in 2025

That would be a 73% national reduction in two years. Their forecast decreases in construction for the major cities are:

• 87.8% in Brisbane
• 83.5% in Sydney
• 78.3% in Canberra
• 65.3% in Melbourne
• 65.2% in Perth

The reasons Charter Keck Kramer are forecasting fewer apartments will be built include:

1. Rising interest rates

The Reserve Bank has increased the cash rate for 10 months in a row. In March 2023, it was 3.60%, which is the highest rate since May 2012.

 

The Reserve Bank may increase the cash rate further, due to high inflation.

The Australian Bureau of Statistics (ABS) reported that annual inflation was at:

• 7.8% for the quarterly measurement ending in December 2022 
• 7.4% for monthly measurement up to January 2023 (this is based on a limited set of prices)

The Reserve Bank wants to reduce inflation to be between 2-3%. Although they see the slight decrease of 0.4 percentage points from December 2022 to January 2023 as positive, they are concerned the inflation rate will stabilise at a high level. To prevent this, the Reserve Bank may increase the cash rate again.

Rising interest rates affect developers in two ways:

• Developers experience an increase in their borrowing costs
• Buyers experience a reduction in their borrowing capacity, so may not be able to afford to buy these apartments

2. Rising construction costs

Residential construction has become more expensive because of:

• A labour shortage – when Australia shut its border during Covid-19, it disrupted the flow of migrant workers, which still hasn’t been fixed
• A shortage of materials – global supply chains were disrupted by Covid-19
• Increased transport costs – transport costs rose 6.3% for the year to January 2023, while automotive fuel prices rose 7.5% (see graph), according to the ABS

3. Reduced profits

The combination of rising interest rates and construction costs has resulted in some developments no longer being financially feasible, according to Charter Keck Kramer director of research and strategy Richard Temlett.

“Rising rates are increasing project costs and also diminishing purchaser capacity and buyer demand, which is leading to slower presales in many projects,” he said. 

“Alarmingly, but not surprisingly, construction costs continue to increase and the residual supply constraints have resulted in many projects not being financially feasible. This will lead to certain projects being deferred or even abandoned.”

Temlett also said prices would have to rise. “Otherwise, developers won’t build it because of the heightened risk they are taking.”

So with increasing demand and fewer apartments being constructed, the supply of apartments may plunge.

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. 

 

 

Written by David Lovato – CPC Development Lending Solutions

 

Before starting your next property development project, consider checking if there are any grants or programs available from either the federal or local government.

An easy way to check is to use Business Australia’s (business.gov.au) grants and programs finder, which shows you all the current grants your business might qualify for.

When browsing the grants you should consider all aspects of your business and new development. For example, grants are available for:

* Research collaborations
* Projects that attract investment, sustainable jobs and growth opportunities
* Funding for weather-related events for small- to medium-sized businesses
* Support for small businesses to adopt digital tools
* Training new employees
* Security upgrades for small businesses

 

Need development finance? 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]

 

 

Written by David Lovato – CPC Development Lending Solutions

 

As any developer knows, finding the right finance is critical to your project getting off the ground. But getting all the funds in place can be a time-consuming and frustrating process. With the RBA starting the rate rising cycle in May cheap commercial loans via bank funding are becoming more expensive and less attractive.

Non-bank lenders have taken a growing market share since the GFC as bank regulations tightened over the last decade.  This has lead to more competition which is great news for you, because borrowing through non-bank lenders offers some big benefits. Interestingly as bank lending tightened, non-bank lending loosened leading to a wild west mentality. Not all lenders are reputable, there are many pitfalls but doing deals with the best non-banks can be rewarding and will help you grow your business.

 

The advantages of non-bank finance

 

Non-bank lenders are typically privately owned and operated. So they can offer credit with fewer strings attached than traditional banks, such as:

 

• Lower pre-sales requirements to start construction
• Lower equity requirements, freeing up cash to drive your future development pipeline

 

What’s more, you get to deal with funders who understand property partnerships, repeat business and an entrepreneurial mindset. So they will generally approve or decline your application within days (not weeks or months like the banks).

 

Non-bank lenders also generally adopt a whole-of-business approach: they focus on the bigger relationship rather than the individual transaction. So If things don’t go to plan, you can work with them to ensure a win-win outcome.

 

 

What’s the cost of a non-bank loan?

 

Lenders charge various upfront and ongoing loan fees, so the cost of a loan isn’t just about the interest rate. The devil is in the detail, because steep charges and loan fees can eat into your profits, making your project unviable.

 

Three factors determine non-bank rates and fees:

 

• The loan’s risk profile
• The project’s profitability
• The borrower’s financial strength

 

A word of warning. Some lenders are deliberately vague about the applicable fees and charges, leaving you to discover them for yourself after you’ve committed to the loan.

 

For example, many loans come with a discounted interest rate that reverts to a higher rate if the loan terms are altered without mutual agreement during the loan term.

 

So it’s vital you’re clear on all applicable fees, charges and conditions before you apply. A specialist development finance broker such as CPC can help with this.

 

 

Five common mistakes to avoid

 

CPC has heard countless horror stories of developers trying to save money by arranging finance themselves, rather than through a specialist finance broker.

 

This usually ends badly.

 

That’s because these developers often end up making mistakes such as:

 

• Falling for too-good-to-be-true deals

Some non-bank lenders lure borrowers by promising them fees and interest rates that seem too good to be true. Sadly, these lowball offers are generally scams.

 

• Getting overcharged

You should also be wary of lenders that charge large upfront fees or seek caveats on your property to secure their fees before getting started on due diligence. Reputable lenders charge only a nominal upfront fee (to make sure the borrower is serious), which then gets refunded at settlement.

 

• Signing up for punitive penalty clauses

Watch out for clauses in offer letters or loan agreements that impose heavy penalties for breaches of loan terms.

 

• Committing to long minimum interest periods

Be careful of loans that require you to pay interest for a minimum number of months, as you might end up being penalised for paying down debt early.

 

• Working with fake lenders

Some unscrupulous brokers portray themselves as lenders and charge large upfront commitment fees. Once you’ve paid, they find excuses not to write the deal.

 

 

Why work with CPC?

 

Even the most experienced property developer finds it hard to choose the right non-bank lender and loan product. That’s because there are many lenders on the market, each offering different loan products, borrowing criteria, interest rates, and fees and charges. But you need to get it right, because you don’t want to make an expensive mistake that prevents your project from breaking ground.

 

That’s where CPC comes in.

 

We’re a specialist development finance broker, and have been arranging funding for our clients since 2014.

 

We work only with well-established, reputable non-bank lenders that have:

 

• Operated through different market cycles
• Got a strong track record for managing loans from beginning to end

 

So you can be confident the lender we find for you will have:

 

• Sufficient funds available
• Demonstrated cashflow management
• A loyal, long-term investor base

 

CPC unashamedly charges a nominal upfront fee. This ensures we can dedicate time to your project, so we can better understand you and your objectives.

 

We can then match you to the right lenders, presenting your project in the best light so they are keen to win your business.

 

Download our in depth lending guide here to learn more about current rates and jargon used in the development lending space.

 

Need development finance? 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]