I have never seen the difference in the bank and GPS borrower rates so small.
GPS, and other private lenders, have a perceived higher cost of funding but with the benefit of no presales. In the current market there is a strong argument that excessive preconstruction presales limit the escalation of the gross realizable value (GRV) from growth in sales prices. We have seen that reduced pre-sale levels assisted GPS to safely navigate COVID and its rapid escalation in build costs. We were able to revalue projects and increase loan amounts to facilitate the additional funds required to complete the project. The banks couldn’t do this due to their higher level of pre-sales which limited the available stock for uplifted values.
As it stands now, if you see an increase in your sale prices of approximately 2.5%, depending on the project of course, the cost of that higher funding is already mitigated thanks to the flexibility of being able to sell the product later. That also means that any increase over 2.5% could be increased profit that you wouldn’t see if you locked into the presale requirements of a bank.
That is an approximate 2.5% growth needed in a market that is predicted to grow by 9-10% this year.
Just in case that the pure numbers of the situation are not your only driver when borrowing for your project, here are a couple of other reasons why you should take a moment to pause and compare when seeking your next round of funding.
- LVR.
GPS will lend at a higher LVR than the traditional bank model. This reduces the level of capital and/or mezzanine funding for the project. On a blended interest rate basis, this makes GPS competitive. This scenario was perfect for a recent borrower who wanted to retain more cash in hand so they could buy the land for the next project. Traditional bank funding would have required that capital, and the next project would have missed out.
- Service.
GPS is an owner operated business based in Brisbane City and not a huge organisation with offices spread all over the country. Borrowers have direct access to the decision makers who live and work in our market area of South East Queensland. This has a value as we understand the effects of our beautiful QLD weather on build progress and have networks of local contractors and contacts to help in a variety of situations, if needed.
- Commitment to the completion of the project.
GPS sources funding from Australian based retail investors, including staff, friends and family of GPS. We therefore have our own capital in the loan. This results in a higher level of commercialism in our decision making. It also means that we have the capital available to inject into projects to get them completed. Everyone loses money if a project stops, so its in our best interest to help you succeed.
- GPS is a value adding part of the development team.
GPS likes to run a run a loan book of ~24 active construction loans in South East Queensland at any given time, and has done for 30 years. We know our market. If a problem arises in a project, there is a fair chance that we either know of solutions or know people who do.
- Line Fee.
Our line fee is the same as the bank, so you have one less item to compare!
So when the bank offers you what seems like a great interest rate, remember to check your friendly, local private lender for a project wide comparison.
If you have an offer on the table already, feel free to send it through and see if GPS can help you maximise the returns on your project.
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