New Project Starts
The general feedback I am receiving is that there will be a slowdown in new project starts for 2021.
While this is good for price growth, it will put pressure on build prices as contractors will have to be competitive to win work and keep their trades.
History has shown that when work starts to slow down for builders there will be an increased level of builder insolvencies.
GPS will be increasing our due diligence of builders. The cheapest price is not necessarily the best price. Recent defect issues have been widely reported on and have made buyers more knowledgeable about what to look out for as the market sees a flight to quality.
A slowdown in new project starts coupled with increased competition from a partial return by the banks and new lenders will apply a downward pressure on interest rates.
Finance Brokers
While the “Best Interests Duty” for Mortgage Brokers (RG 273 – introduced 1 January 2021) only applies to credit regulated under the National Credit Act, it sets a best practice benchmark for finance brokers.
My experience with regulation (dating back to 1997) is that it is like a sandhill – slow moving but all encompassing. If you don’t adapt and keep ahead of it, you will be consumed.
There is also a growing awareness of the conflict of interest issue for finance brokers that are also engaged in lending. I expect that finance brokers who have such a conflict of interest will have to grapple with the concept of “informed consent” from borrowers.
Market awareness is also growing of some finance brokers representing they are the lender when all they are really doing is broking the deals.
It will be a year when some finance brokers will have to re-define their business strategy.
Competition amongst Lenders
The Banks appear to be slowly re-entering the market for residential development finance. Lending conditions are quite strict with low LVRs and high pre-sale requirements. I expect they will focus on the larger deals. It isn’t viable for them to operate on such tight margins for smaller (for them) loans.
Over the past few years there has been an influx of new lenders into the residential development lending market.
One of my adages for successful residential development lending is – “Anyone can lend money. Few can get it all back. Even fewer can lend it consistently.”
I expect a few of the new entrants to be tested with “legacy loans”. Others will be tested in achieving viable fund usage levels.
Richard Woodhead | Managing Director
Comments are closed.