While still a bit fuzzy due to the interference of COVID, 2022 is looking like a solid year for GPS Development Finance Pty Ltd (GPS).
In the last few months of 2021 our loan pipeline filled. Borrowers want to get ahead of the game and make sure their funding is penciled in for project starts in the first three months of 2022.
Some observations from the questions I have been asked, which may assist in understanding where 2022 is headed:
- Borrowers and builders are quite nervous on many levels. They want to make sure they are dealing with a lender who is committed for the entire project. The lender being part of the team and working through the inevitable issues which will arise also appears to be important.
- Tri Party Agreements are finally in favor with builders. These are agreements between the builder, developer and lender which deal with what happens should the developer fail. An issue for most of my career as a lender has been builders telling me the many unpleasant things I could do with such agreements. Builders are now requiring these agreements.
- Builders are being selective as to who they take on as clients. It is now more difficult to find a builder who will tender for work. Their preference is work with clients in a transparent manner to deal with the cost escalation issues.
- Pre-construction pre-sales are on the nose. Developers need price growth in sale prices of their product to counter the inevitable cost escalations.
- Borrowers and builders want to be sure that the funding is in place with a lender who will be part of the team before commencing any site works.
- Relationship building is back in vogue. Only 2 of the 24 loans GPS is working on for settlement in the first half of 2022 were referred to GPS by finance brokers. They are both settled land facilities which are in the process of being converted to construction facilities. Borrowers and builders want to work with known and proven lenders and to have a direct relationship with them.
- Demonstrated profitability of projects remains under pressure due to valuers struggling to find recent comparative sales and QSs being cautious about further escalations in building costs.
- While pricing of loans does not appear to be under pressure from competition from other lenders it remains under pressure from a project profitability perspective.
- Developers of projects in South East Queensland continue to be parochial. They want to deal with known and proven local lenders.
- There has been a substantial increase in the number of projects which have been put on hold after Bank level pre-construction pre-sales have been achieved, due to the escalation of build costs.
Comments are closed.