This year is one that won’t soon be forgotten, from increasing interest rates to out-of-control construction costs and, of course, a broader cost-of-living crisis.
Whilst everyday Australians are understandably feeling the pinch and pressure of increasing costs and interest rate rises, one group often forgotten is the humble Australian property developer.
It’s hard for many everyday Australians to see property developers in any light other than “greedy” or “profit-driven”.
What many fail to recognise is that property developers, much like builders, are one of the cornerstones of strength in the Australian economy.
They’re responsible for housing Australians, building infrastructure, employing untold thousands and boosting the economy.
Despite this, property developers are often met with a hostile regulatory environment, a scathing news media reception and, arguably most importantly, a lack of appreciation by the conventional banking system.
Among other reasons, a large chunk of Australian property developers are increasingly seeking out private lending solutions for their projects as a direct result of the general consensus that conventional "big banks" are failing to adequately service property developers.
Many property developers are confused at the current state of affairs with the Australian debt markets and their treatment of development/construction loans.
There are few people in the market better placed to seeing this sentiment than Brett Macartney and Nathan Khoury of www.privatelendingbrokers.com.au. As specialists in private debt solutions for property developers, Brett Macartney recalls that he often fields developer enquiries about the current lending climates.
Macartney recalls: "Some queries we often hear from property developers:
“I just don’t understand why the banks aren’t jumping at this loan? It ticks all the boxes.”
“It’s such a low-risk loan. Good area, good product and we’re very experienced. Is there really a need for such a high presale covenant?”
“I really need the leverage to make sense. The bank’s proposed LVR is simply unreasonable.”
“I’ve given up waiting for the bank. It’s been 4 months and I still don’t have an approval.”
Private lenders have recognised this growing frustration with property developers and have swept into the Australian market very quickly in order to capitalise on it.
What was at one time considered a relatively small and niche industry sub-sector, private lending has now become a viable and very popular option for property developers.
Developers making the switch from banks to private lenders for their property development finance needs are doing so for a few key reasons:
High Leverage: Private lenders can offer 70-80 per cent gearing (often as a mix of stretch first mortgage loans or including a strip of mezzanine debt). This allows developers to activate sites with less equity.
Presales: Private lenders are able to offer no presale facilities. This allows developers to begin projects quicker and not be forced to lock in revenues in a potentially depressed market. It also means they are less likely to need to discount heavily, as well as avoid pre-marketing costs such as display suites, online marketing, etc.
Speed: Private lenders can turn around approvals in days and settlements in weeks. Time is money to developers and banks are simply slower.
What’s increasingly apparent is that the banks seemingly don’t have a motivation to play catch-up with the private lenders in terms of shifting their offering more to what developers actually need and want.
As a result, it’s easy to see a future where private lenders take up more and more market share in the broader commercial lending landscape.
For all developers looking to access private debt markets and connect with some of Australia’s most recognised private lenders, the team at www.privatelendingbrokers.com.au are available to discuss on an obligation-free basis.
The Urban Developer is proud to partner with Private Lending Brokers to deliver this article to you. In doing so, we can continue to publish our daily news, information, insights and opinion to you, our valued readers.
