Category: Bridging Loans

What are Non-Bank Lenders? Benefits for Developers

When looking for development finance or a mortgage in New Zealand, main banks used to dominate the market. While main banks still remain the most popular avenue to secure loans today, they are no longer the only path to safe and substantial financing. We’ve seen non-bank lending grow over the past two decades, giving developers greater freedom to choose a structure that works for them.

ASAP Finance is an example of a reputable non-bank lender with strong business acumen and a history as a responsible lender. Our financial institution is the ideal place for those who want to accelerate development time frames and maximise return on equity. Unlike banks, we break down the barriers preventing your next project from getting off the ground.

Let’s dive deeper into how non-bank lenders work and what makes ASAP Finance the best non-bank option for construction development funding end-to-end.

What are Non-Bank Lenders?

Non-bank lenders tend to be privately owned and operated, which means they can adapt their products and services to the specific needs of their clients, creating highly competitive funding packages. At ASAP Finance, we take advantage of this independence, dedicating more time to our clients’ needs and enabling them to mitigate key risk areas, as well as offering flexibility in funding processes and conditions. For clients, this means fewer onerous conditions than they can expect when dealing with a main bank. Since inception, ASAP Finance has settled $4.44 billion in lending across more the 2780 loans.

Banks, on the other hand, operate in a stricter environment where loans are more standardised. Meeting every requirement isn’t always feasible for developers, and opportunities can be missed when pursuing traditional bank lending. Non-bank development finance is designed to remove roadblocks and speed up projects without sacrificing any of the rigour which traditional bank loans come with.

Are Non-Bank Lenders Safe?

A common question asked by developers exploring their construction finance options beyond the main banks is about safety. Although there are fewer regulations in place for non-bank lenders, they face just as much financial scrutiny to ensure outcomes are met and loans are fair. Risk mitigation is central to every construction finance project for all parties involved. Whether it’s a medium scale apartment block development or a 39-unit townhouse project, non-bank lenders assess each project based on what is practical and feasible.

Greater Flexibility

As with the other benefits on this list, highly personalised customer experience and customised loan structures are key characteristics of non-bank funding. Much of this flexibility is due to the degree of regulation imposed on a given lending institution. Deposit-taking institutions (including both mainstream banks and non-bank deposit-taking institutions) owe a duty of care to those who deposit funds with them and are heavily regulated by the Reserve Bank of New Zealand. In contrast, ASAP Finance is a non-deposit-taking institution and is privately owned and operated.

This allows us to decide on the level of risk we wish to accept, what conditions we impose, and the types of projects we wish to fund. In other words, we own our own risk and can adjust our services depending on the individual needs of our clients. We have the freedom to stretch Loan-to-value ratios (LVR’s), fund a higher percentage of total development costs, and present clean funding offers absent the traditional hurdles imposed by banks.

This flexibility also helps non-bank lenders like us to choose a niche vertical and offer a wide range of products suited to that vertical. We’ve found that many of our clients were unable to find loan structures that suited their needs prior to encountering ASAP, and we have our wide product range thanks to our flexibility as an independent institution. In our time working in the property development finance industry, we’ve been able to facilitate many remarkable projects without the interference of a third party.

Credit with Fewer Conditions

Here are some examples of services enabled by greater flexibility and our commitment to making our clients’ journey easier.

Credit Policy

Funding up to 90% of total development costs enabling developers to increase return on equity and free up cashflow to inject into other development opportunities.
Funding available at up to 75% LVR for construction loans.
No pre-sales required enabling clients to accelerate development programmes and ride rising market trends
Fixed price contracts are not required; we back the experience of the builder and developer.
Valuations are not necessary; we take time to understand our client’s product enabling them to avoid unnecessary costs.
We do not require a Quantity Surveyor or Valuation Progress Reports; we get our boots muddy to ensure progress payments are made on the same day as they are claimed by the developer/builder.

Loan Structure and Management Flexibility

Creation of capital and debt solutions unrestricted by bank policy. If it makes commercial sense, there is a good chance we can structure a deal. We offer underwrites and joint ventures in addition to a number of creative funding solutions. The Vulcan, a 38-unit luxury apartment development is the result of our latest joint venture with Plutus Holdings Limited.
Equity releases once the project has been de-risked (e.g. once civil works have been completed and the project is out of the ground).
Ability to process drawdown requests on the same day. We understand that cashflow matters.

Do you need hassle free development funding?

Speak to the team at ASAP Finance today. We’re the leading non-bank lenders for development finance in New Zealand, and our priority is helping our clients get their projects off the ground. No two non-bank lenders are the same, so when researching your ideal institution, it’s important to understand their strengths and weaknesses. Get in touch with one of our lending managers today to learn more about ours.

COVID:19: Investing in Property in a New Zealand Recession

Amid a widespread pandemic, the global economy is caught between cushioning the blow of a recession and planning for recovery. The impact on the property finance market will be significant, albeit mitigated by early policy responses from the NZ government and Reserve Bank. Comprehensive post-lockdown data is yet to be reported, and clarity as to what a post-lockdown economy will look like remains elusive. What is clear is that uncertainty will be a key factor in the property market over the next 12 months, and investment decisions need to be tailored accordingly.

Instead of floundering, the key is to look at economic indicators and use them to predict where the property market is going. Now is an optimal time for well-capitalised investors and developers to exploit current market conditions and prime themselves for a future where interest rates refuse to climb, and property prices detach from fundamentals. So, what should property investors do to survive the COVID-19 recession and recover on top?

Forecasting Economic Change & Recession Recovery

Many models of post-COVID recovery have been created assuming that we will be aiming for a “return to normal”, but this cannot be the yardstick we use. Big changes are predicted by financial analysts like Forbes’ Nishan Degnarain and the UK government, as data points continue to reveal potential changes to the “norm” and the adoption of a “new normal”.

A YouGov poll taken in Britain demonstrated that only 9% of people want to return to the ways of pre-COVID life, while the rest want to see changes in how their government approaches issues of the environment, the economy, and civilian aid. If these results are reflected in the wider world, this will mean potentially significant changes to consumer behaviour, altering the hierarchy of different sectors and adjusting the world to a “new norm”.

Factors closer to home must also be taken into account, such as the reduction in domestic travel between regions in New Zealand, decrease in international tourism, volatile ROI rates, job opportunity rates rising or lowering in different areas, and more.

Ultimately, it is important to remember that there are few (if any) facts to predict the future, and that the vast majority of theories about the future are extrapolations from past events. What we are experiencing as a global community has never been seen before, so we need to remain sceptical as to the possible outcomes.

Recovery Models for the Economy

Below are the best- and worst-case scenarios for recession recovery.

An L-shaped recession is the worst-case scenario for recovery, signifying long-term damage to the economy and minimal recovery for quite a few years. Luckily, this recession is unlikely due to governmental responses to the virus and stimulus packages being granted in many countries. However, this pattern is not impossible.

A V-shaped recession is the best-case scenario for a post-COVID world, indicating short but harsh consequences and a quick rebound with minimal long-term damage. This could be the future for New Zealand’s economy thanks to the quick reaction on the part of Jacinda Ardern’s government.

Economists are recommending approaches that benefit from the volatility and uncertain future promises, i.e. employ strategies that enhance returns whether the market shifts up or down. These conditions create an opportunity to protect against downside risk and increase income if the investor refrains from reactionary investment.

What New Zealand’s Economy Means for Property Investment

Forecasting is certainly not foolproof. However, using economic indicators and predictions from the country’s financial institutions can give us a glimpse into the potential future of the property industry.

Economic Indicators and Predictions in New Zealand

According to the New Zealand Treasury:

Three of New Zealand’s major banks have downgraded their economic forecasts to be more pessimistic than they were, predicting a contraction of close to 20% in the June quarter and unemployment nearing 10% by the end of the year.
Retail spending in every product (apart from consumables) has taken a sharp downturn in spending because of the lockdown, while unemployment claims from work-ready individuals have soared to nearly 120,000.
If restrictions ease further in the coming weeks, the Treasury predicts the GDP will rebound in the September quarter (predicted at around 8.5 points of growth by major banks).

The current forecast is an appreciable rebound in September for New Zealand. So, what does the above mean for property investors specifically?

For Property Investors

The likelihood is that New Zealand’s recession will be short but harsh, creating buying opportunities for investors with strong balance sheets. Low interest rates mean that smart, well-capitalised investors can use this time to expand their portfolio and ride the wave upward, but only if they’ve accounted for their other costs in the worst periods of the recession. It is important to remember that availability to credit will likely remain tight over the near term, making early engagement with your funder a must. As it stands, market feedback has indicated that banks are limiting exposure to certain high-risk sectors with funding support limited to existing clientele.

Our recommendations are as follows:

Have a clear investment strategy that accounts for positive and negative changes. Be a realist and consistently consult data to determine your next move.
Manage your risks, don’t over-invest.
If you’re looking for loans, spread your lenders across bank and non-bank sectors if possible. If you’re not an existing client of a bank, consult a reputable non-bank lender that can help you with your investment strategy.
Keep your focus on long-term fundamentals, such as low mortgage rates, dwelling shortage in urban cities, and more. (Source: Tony Alexander)

Here’s a shortlist of what we should all be keeping an eye on over the coming months:

Unemployment
Mortgage rates
Migration
Supply/demand
Reserve bank policy
Retail bank credit policy
Rates of return for all asset classes
Sales & listing data

Keep up with the latest shifts in property development finance with ASAP Finance

We’re New Zealand’s market-leading non-bank lender for property development finance, and we offer everything from bridging loans to joint venture investments. For more information on our services or to consult us about a hassle-free property loan, get in touch with a lending manager from ASAP Finance today.

Revised optimism for 2020

By the end of 2019 the NZ property market was showing signs of improvement – one needed only to have attended a pre-Christmas auction to notice the stark contrast in mood as previously indifferent buyers appeared now excited and confident to freely ‘bid away’.

The turn in sentiment can be traced back to April 2019 when the coalition government decided to abandon a general capital gains tax as proposed by the TWG. Since April, monthly house sales have risen steadily to be around 13% higher in November 2019; even house sales in Auckland have rebounded 30% to around average levels.

House prices also shifted up a gear, supported by record low interest rates, with Auckland posting seven consecutive monthly increases and fully recouping the prior two years’ worth of losses.

CoreLogic Senior Property Economist, Kelvin Davidson noted recently that the solid economy – especially low unemployment – and favourable mortgage rates were playing a key housing market role too.

At ASAP, much of the above confirms trends we have already seen through the numerous developments funded throughout the course of the year. Demand for well-located and thoughtfully designed properties remains high and clients who have adhered to these simple principles have been able to sell down stock quickly and often above initial price expectations.

Higher density developments such as terraced townhouse projects continue to represent the bulk of our development finance applications at ASAP; not entirely surprising given the high demand we continue to see at the affordable end of the market. In fact, the sector has proved somewhat of a safe haven over the past few years during periods of lacklustre activity at the premium end of the market. With land prices at elevated levels and affordability at the forefront of everyone’s mind, we expect sustained focus on high density projects over the coming year.

Looking ahead to 2020, most major trading banks are estimating rosy conditions to continue with calls for property prices to increase between 5.0-7.0% including ASB and Westpac who both recently revised their estimates upward to 6.5% and 7.0% respectively. What appears to be clear is that the market is being driven by the fundamentals of supply and demand rather than speculators, which was a feature of the last upward cycle.

The Reserve Bank’s decision in December to increase capital reserve ratios, whilst less severe than banking pundits predicted, is anticipated to further tighten credit conditions whilst its decision to leave existing LVR restrictions unchanged should continue to keep a lid on the speculative market.

What remains to be seen is how the coalition government will respond in the build-up to the General Election and whether a new round of ‘regulation’ will give rise to a pause in market activity.