Category: Development and Construction

The past few months have been a wild ride for those involved in Property Finance. It was only a few months ago that NZ was reeling from nationwide lockdown and mainstream economists were predicting house price declines between 7 and 15 per cent.  However, the New Zealand housing market has fared far better than expected, and many economists and lending institutions (including the RBNZ) are now having to revise their forecasts upward.  

It would seem that the strength of the government’s fiscal response and RBNZ’s unwavering commitment to keep rates low were largely underestimated. House price data published by REINZ for September 2020 confirmed record breaking volumes and sale prices across the country. For September, median house prices across NZ increased by 14.7% YOY to a new record high of $685,000, while Auckland’s median house price increased by 12.6% YOY to $955,000 (also a new record high). 

Perhaps the most obvious shift in buyer sentiment has been visible in auction rooms where bidding wars are now the norm, not the exception. In our experience, properties that have attracted the most attention are those that have immediate development potential or large land holdings (land banking). Developers have come to the realisation that under the unitary plan, townhouse developments can be accommodated on almost any residential zone (with the exception of residential single house). The increase in property values that has occurred over the past six months (particularly for development sites) has been astonishing to witness considering the weakened state of the local economy. 

With all eyes on COVID-19 and subsequent rebound, the General Election’s has almost been entirely overlooked by market pundits. As property people, it is important to keep our ears to the ground regarding potential policy changes, limitations, and regulations around the property market. Below we explore the impact elections have historically had on the property market and policy changes that are worth keeping an eye on moving forward. 

Past Elections and Their Effects on the Property Market

Historically, the approach of a General Election has always drawn the eyes of investors and owner-occupiers. This is because a change in government can result in changes to policy and regulation that can ultimately impact how people spend their money. Taxes and regulation that are likely to increase the costs of owning property will result in investment away from the sector while an easing of regulation and reduction of costs will incentivise investment.  

It is important to note that investor and owner-occupied markets are two different sectors and government policy has similarly made a clear distinction between them. Historically, the investor market has been the focus of regulation and tax adjustments while the owner-occupied market has been largely left alone.  

Colliers’ monthly research report on New Zealand’s property market provides interesting insights around the six most recent NZ General Elections. By plotting the total monthly sales, national monthly building consents, and net optimism versus pessimism around the six elections, Colliers uncovered some key statistics. 

• The prospect of potential changes to housing policy will, in most cases, influence the residential investor sector to a greater extent than owner-occupiers. 
• Investor sentiment in the commercial and industrial sectors typically dips slightly before each General Election as people wait for the certainty of an elected government.  
• Apart from that, 5 out of 6 elections showed little divergence in residential, commercial, and industrial sales activity from month to month. 
• One election period (the 2014 General Election) had a noticeable shift in buying activity. Average monthly sales three months prior to the election were sitting at 5,680. Once the election was over, that figure surged to 7,032 sales for the following three months. Why did this happen? 

The 2014 General Election

In 2014, the Labour party promoted a Capital Gains Tax as well as restrictions on the ability of overseas entities to buy Kiwi residential properties. These restrictive policies prompted property investors to take a step back as they grappled with the uncertainty of potential policy changes that could affect their assets.  

National opposed Labour’s stance on these policies, and once National won the General Election in 2014, the investment property market surged with renewed vigour.  

Colliers cited one particularly interesting statistic, as it sheds light on the differing effects of restrictive policies for investors and owner-occupiers: 

“Total mortgage lending to investors increased from $1.167 billion in August 2014, a month prior to the election, to $1.421 billion in October, an increase of 21%. The uplift for first home buyers and other types of owner-occupiers was just 8.6%”. 

– Colliers NZ August Research Report 

This significant change in investment lending indicates that owner-occupiers did not hold back nearly as severely as investors in the approach to the election, as the new restrictive legislation held no significant barriers.  

What about 2020?

For the coming election, predictions are erring towards minimal changes in the property market. At the time of writing, no significant restrictive legislation around property has been brought to light by either of the dominant parties and the notion of a “capital gains” tax appears to have been forgotten. That being said, below we explore some of the policies that are likely to be key determinants for investors and developers over the coming term.   

Labours introduced the Healthy Homes Standards in 2019, which set minimum heating, insulation, ventilation, moisture and drainage. The new standards are to apply to new tenancies entered into after 1 July 2021 (and to all rental homes from 2024). This will require investors to upgrade their rental properties if they do not meet the required code.  

National says the current government’s Healthy Homes standards are unfair on landlords and should be relaxed. National has also stated that they would repeal the Residential Tenancies Amendment Act including changes to no longer allowing landlords to end a periodic tenancy without a reason. In this sense, a national win would see more favourable terms offered to property investors. 

For developers, perhaps the greatest change could come from repealing the Resource Management Act (RMA). The repealing of the RMA has been endorsed by Act and National for some time however in a pollical U-turn, Labour too has put their backing behind  this motion. The RMA imposes overly restrictive planning rules on developers and home builders; where replacing the RMA with a separate Environmental Protection and Urban Development Act could see increased development activity and improved housing affordability. Part of this process involves the removing the Metropolitan Urban Limit. Ultimately the effectiveness of any such policy will lie in its delivery.  

Beyond the above, it is fair to say that the immediate future of the New Zealand property market resides not in political changes or policy but rather the economic, financial, and demographic changes resulting from COVID-19. Thus far, sales and investment activity has remained strong and we continue to talk to investors and developers as to ways they can leverage their strong cash positions in the low interest rate environment. We expect investment in property to accelerate as the country pulls out of the recession.  

Get continued insights and a partner in the property development process. 

ASAP Finance is the leading non-bank lender for property in New Zealand. Our lending managers are also actively involved in the property market as developers and investors; this makes them ideal partners in your own property development journey. Speak to one of our lending managers about your next residential development or commercial and industrial property loans today. 

The loan-to-value ratio (LVR) is one of the most common and widely used metrics in the world of property finance. For financiers, it is broadly used to manage and mitigate credit risk when creating a loan facility. For property developers and investors, understanding LVRs and their application in credit analysis will provide insight as to the likely challenges you will face when seeking a loan, as well as assist in identifying the best finance partner for your project.  

It is important to remember that the simple loan-to-value ratio is only one metric used by lenders to assess credit risk. Other considerations extend to: the capacity of the client, past performance, the team of people appointed to the project (and their relevant experience), the form of pertinent contracts, relevant consents and a projects feasibility. Such considerations are generally summarised within the 5Cs of credit.  

We’ve created this article to explain LVR’s and their implementation in development finance – enabling you to head into the lending process with your eyes wide open. 

The Loan-to-Value Ratio 

The loan-to-value ratio is a percentage that indicates how much of a property’s value is funded by debt vs. borrower’s equity (cash or otherwise). For example, if a property is worth $1,000,000 and the borrower has current borrowings of $800,000 the LVR would be 80%. A higher LVR is typically associated with greater credit risk, as there is less margin of safety for the lender between the funds lent and the property’s value.  

LVRs and property type 

Each class of property (residential, investment, commercial, industrial, bare land etc.) has its own unique set of characteristics which influence the risk profile of the property class. In response, and to take the variable risk profile of each asset class into consideration, lenders look to adjust their LVR’s.  

For example, most lenders adopt a lower maximum LVR when lending against vacant residential land (50–65%) than they do when lending against a residential dwelling (up to 90%). This is because bare land usually has no holding income, requires improvement to be enjoyed, and has a shallow buyer pool when compared to standard residential property, making it more susceptible to price corrections. 

Development loans – As-is & complete values 

When putting a development loan facility in place, a lender will assess LVR positions both at the start and at the end of the development. A lender will ask: 

1. what is the initial exposure? (being the initial advance vs. as-is value), and  

2. what is the end exposure once the project is complete? (development facility limit vs. the projects completed value) 

A development facility can split into an upfront initial advance, and a progress payment facility (used to fund the build). The initial advance is secured against the value of the property on an as-is basis (this tends to be land only). In instances where there is an existing dwelling on site, it is often removed during the early stages of the development to enable civil works; therefore, no value is attributed to it.  

A skilled lender will ensure the initial advance LVR falls within an acceptable range for lending against bare land. This is an important metric as it will dictate what funds you will be able to obtain to purchase a property or refinance an existing property before the development commences. At ASAP Finance, this threshold tends to sit between 60-75%.   

The second test applied ensures that end (as-if complete) position meets LVR requirements. This is simply the full development facility measured against the ‘As If Complete’ valuation which assumes that the proposed development work is already complete. This is done by obtaining a valuation or assessing the value from plans and specifications against comparable sale data and listing. At ASAP Finance, we lend up to 75% of the completed project value for standard residential developments. Noting that the completed value can be inclusive or exclusive of GST depending on the nature of the project and the client’s intentions.  

Consider your GST position 

When calculating LVR’s for a property development you must consider your GST position. If you are in the business (or intend to be in the business) of buying, selling, developing, or building residential properties, then you will likely need to register for GST. This means that all the figures within your project feasibility should be on a GST exclusive basis (including the purchase price and end values of your property).  

To calculate the GST exclusive value of a property, simply divide the end value by 1.15. For example, if you are building 8 townhouses worth $1,150,000 each, the assumed end value would be: (1,150,000 x 8 units)/ 1.15 = 8,000,000. As you can see, forgetting to take GST into consideration can have a catastrophic effect on your LVR position.  

Choosing a Non-Bank Lender for Your High-LVR Loan 

Maximum LVR thresholds differ significantly between main bank and non-bank lenders. Deposit taking institutions who operate in a heightened regulatory environment (RBNZ) have restrictive funding conditions that result in lower LVR thresholds. In contrast, non-bank lenders (especially those who have access to private funding) have greater flexibility as to the implementation of LVR’s, enabling them to finance projects that would otherwise not get off the ground.  

Why choose ASAP Finance? 

Our independence enables us to work with our clients to customise their loan terms to suit the development they are undertaking. By choosing ASAP Finance, you gain a partner in the development process. We avoid enforcing onerous conditions that are restrictive to funding enabling you to focus on what matters most.  

We specialise in development finance – with over 50 years in cumulative development experience across the ASAP team, we offer valuable insight into the viability of a project that other lenders don’t have. All of our lending managers possess real world development experience. We are able to walk alongside you during the development, offering advice and guidance at times when they are needed most.  

Fund your next project with the market leading non-bank lender in New Zealand. 

We partner with investors, developers, and home builders, walking alongside them from application all the way to the completion of the loan. From short-term bridging loans to development financing, our bespoke lending packages are made to get your development off the ground.  

Reach out to one of our highly experienced lending managers today to discuss your application ASAP.

When developers are looking for a new build partner, they put their project out to tender. The evaluation process that proceeds is an intense and in-depth review of pricing, relevant experience, past performance, technical skills, resourcing, and other relevant factors. It is these factors that ultimately drive the decision-making process for the developer, ensuring that the right builder is chosen for the job.  

Unfortunately, many developers forget to apply a similar process when choosing their funding partners, instead deciding to focus solely on price. This can result in bad outcomes for banks, non-bank lenders, and developers. Remember, the best funding partners are those that impart knowledge and value during the construction process, as well as offering a competitive price.  

Nonetheless, having a robust understanding of pricing models and fee structures used by various lenders is an essential tool in a developer’s toolkit. After all, these fees can have a significant impact on a project’s feasibility. In this blog post we will focus on the various fee structures adopted by different lenders, keep in mind that price should not be the only factor one considers when choosing a funding partner.  

Make comparison easier by annualising loan fees

Fees are often charged in relation to specified loan terms, which can make comparison difficult. An appropriate comparison can only be made using annualised fees and costs.  

Luckily, headline interest rates are generally quoted on a per annum basis (i.e. 6.95% per annum). However, other fees fluctuate depending on the loan’s term, so annualising them is useful for accurate comparison. Once fees are annualised, we can then add them to the headline interest rate to calculate a finance rate for any given loan. 

Types of Lender’s Fees

The Application/Establishment Fee

An application fee is paid upfront by the Borrower and is typically denominated as a percentage of the total Loan Facility. Application fees can range from 0.5% to 3.0% depending on the lender and the type of facility being provided. Upon commencement of the loan, the application fee is usually capitalised (added to the balance of the loan).  

Development facilities are typically provided for a fixed term where the application fee corresponds to the term provided by the lender. If the term of the loan needs to be extended, then the application fee will be charged again (usually on a pro-rata basis). Therefore, it is important to annualise application fees.  

Let’s look at an example where a lender provides a development facility of NZ$1M to a developer on the below terms: 

Type:       Capitalised Interest

Term:       6 months 

Rate:        9% 

Fee:         2% 

Line fee:  0% 

In this instance, the annualised application fee can be calculated as follows:    

Annualised application fee = application fee / initial term * 12 months.  

So, the annualised application fee would be: 

2% / 6 * 12 = 4% 

To calculate the finance rate, you simply add the headline interest rate per annum (9%) to the annualised application fee (4%), which in this case would imply a finance rate of 13%. 

The Line Fee

Line fees are charged to compensate the lender for their commitment to lend or for holding unused funds in a facility. As mentioned in our blog on development loan structures, interest is typically only charged on the drawn balance of the loan. Therefore, line fees are a way for lenders to offset the lack of interest income generated during the term of a loan, where the average loan balance is well below facility limit provided by the lender. For example, on a development loan which is drawn down in stages, a lender will typically earn only 60% of the quoted headline interest rate in interest income during a 12-month loan.  

The usual cost of a line fee is between 0.25% and 3.0% per annum, with the fee charged against either (a) the undrawn portion of the loan, or (b) against the total facility limit (similar to application fees). Understanding what portion of the loan the fee is being charged against is important as it can materially impact the cost to the Borrower. Furthermore, some lenders will quote you a line fee on monthly terms, while others will quote on yearly terms. For example, a 0.25% monthly line fee may not appear large, but on an annualised basis it amounts to 3% per annum, which is significant in the development world.  

It is crucial at this point to state that establishment and line fees are not the only fees that may be payable. More recently, we have seen lenders introduce alternate pricing models that include minimum earn provisions, performance fees and exit fees.  Other hidden costs such as site visit fees, drawdown fees and early repayment fees are not uncommon and need to be considered when undertaking a simple cost analysis.  

Lastly, it is extremely important to identify and review any funding conditions required by the lender. Things such as valuations, requiring a quantity surveyor to be appointed to the project, or requiring pre-sales may seem appear to be standard funding conditions for development loans, however, each one comes at a specific cost which should be considered.  

No matter the structure, it is always best to find a lender that is fully transparent with their clients as to what costs are involved. And remember: “Price is what you pay, value is what you get”.  

Enjoy no hidden costs, fees, or hurdles with New Zealand’s market-leading property finance company.

From property development loans to bridging loans, ASAP Finance offers a bespoke funding solutions that enable you to get your next project out of the ground. All of our lending managers have development experience, so we understand how important it is to be upfront and transparent with our fee structures.  

Start your journey to a completed project, and don’t deal with hurdles along the way. Reach out to an ASAP Finance lending manager today.

At ASAP Finance, we work closely with our clients to understand their development finance needs, then craft bespoke funding solutions that transform property ideas to reality.  

When we create a loan facility, we analyse each ‘input’ required to complete a project—considering elements such as planning, design, construction and delivery. In addition, we take into account the relevant experience of the developer and project. Finally, we apply these considerations against ASAP’s credit criteria which will ultimately determine how much we can lend to you: the Developer.

In some instances, we may be able to lend the full cost to complete the project. In other instances, the Developer may be required to contribute toward covering a portion of the project costs. If so, these funds need to be introduced into the project before our funding can be utlilised. This process is called funding on a ‘cost-to-complete’, and is a fundamental principal of construction funding.

The Process: What You Can Expect

(1) Before a development facility is put in place, a lender will require a detailed development budget to be prepared and submitted by the client. This will include items such as land purchase, soft costs (planning, consenting, professional fees), hard costs (civils and construction) and other line items such as utility connection charges, development contributions and appropriate contingency.

(2) Undertaking detailed due diligence, the lender will establish the total loan amount that they can provide to the client. The lender will work backwards to identify how much of the total development costs they are able to fund. The maximum amount a lender can fund will vary depending on their specific lending criteria. Any shortfall between the proposed loan facility and the total development budget will need to be funded by the client upfront.

(3) The developer’s equity is introduced into the project first to cover any shortfall between the lender’s loan facility and total development costs. This ensures that the lender is retaining 100% of the cost to complete the project within their loan facility.

(4) The size of the developer’s equity contribution will vary depending on the size of the lender’s loans facility. For example, the developer may be required to only cover some of the acquisition costs with the lender funding the design and build. In instances where there is a substantial shortfall, a greater equity contribution may be required, and the developer may need to complete the design, consenting and a certain percentage of physical works.

(5) Once the required equity contribution has been met, the lender will then fund the balance of the work required to complete the project. Future payments are always made on the basis that the lender’s loan facility continues to be equal to the projects budgeted ‘cost to complete’.

An example of a construction loan’s payment stages:

Let’s look at a simplified example where a developer wants to build some town houses on a previously acquired plot of land. For simplicity, let’s assume the total construction costs are $10 million and the lender has put in place a $6 million loan facility. This would require the developer to cover $4 million of costs (or 40% of total outlay). Their payment structure could look like this:

Client funded

Stage One: 20% – Site works, permits, foundations

Stage Two: 20% – Wall and roof framing

Lender takes over funding.

Stage Three: 20% – Cladding + Internal lining, plumbing and electrical

Stage Four: 20% – Internal fit-out and finishing including kitchen and bathrooms

Stage Five: 10% – Landscape and Driveway

Stage Six: 10% – Final payment and issuing of Code Compliance Certificate (CCC)

Why do lenders fund on cost-to-complete basis?

Keeping an accurate budget and a close eye on the cost to complete ensures a project can be taken to completion with the resources available. Lenders always prefer to fund the ‘back-end’ of the project as it affords them a degree of control over the construction budget and capital allocation. Funds are less likely to be misappropriated or allocated toward items that are ‘unfunded’ and that could result in a project running overtime and over budget.

The Advantages of Cost-to-Complete Funding with ASAP

At ASAP Finance, we work alongside our clients to assist them in building out feasibility studies and development budgets. This is done at a very early stage to ensure that the funding solution we put forward will be one that can take their project to completion. Each line item is reviewed with the client and in the end, a funding table is provided detailing who is responsible for funding each cost making it easy to track payments and project stages.

Choose experience, strong business acumen, and no hurdles. Choose ASAP Finance.

When funding on a cost-to-complete, the most important thing is to have a lender by your side that understands the intricacies of your project and one that prioritises the successful completion of your project. Reach out to ASAP Finance, one of the best development-focused finance companies in Auckland, today.

Whether you’re seeking a bare land loan or looking for a comprehensive development finance solution, structuring your loan repayments to meet your cash flow requirements will enable you to control your risk and maximise your return.

Below is a comprehensive breakdown of the three repayment types; principal & interest, interest-only, and capitalised interest, and the scenarios they are most suited to. Ultimately, choosing a repayment method that suits you and your circumstances will go a long way toward facilitating your financial success.

Principal and Interest Loans

Principal and interest loans have two components, hence their name. The “Principal” is the initial loan amount borrowed from the lender, e.g. a bank or a company like ASAP Finance. The “Interest” is the cost of Borrowing and is the extra money accumulated on the Principal over the specified loan period. This loan structure is most commonly adopted by banks for consumer homes loans, and they are designed to pay off a loan over a defined period (e.g. 30 years).

Monthly repayments are fixed and at the beginning, your monthly repayments consist of a small portion of the Principal amount, with the majority of the repayment consisting of Interest accumulated for that month. With each repayment the Principal sum is gradually reduced, meaning the interest generated each month gets smaller. With the monthly repayment amount fixed, this means a greater portion of the repayment goes toward reducing the Principal amount, and a lesser amount towards Interest. The latter part of your loan term is mostly dedicated to paying off the Principal.

At ASAP Finance, our clients are typically developers and property investors in need of short-term loans, hence Principal and Interest Loans are not often used. Instead, our clients seek to increase leverage to maximise return on equity. That said, it is important to understand P&I loans and their role in the world of property.

Interest-Only Loans

Interest-only loans are commonly used here at ASAP Finance. After borrowing the Principal amount, investors will only pay the interest accumulated on the Principal for the loan’s duration.

In this situation, the Principal doesn’t need to be repaid until the loan period ends. This reduces the mortgage repayments during the term of the loan and allows investors to direct their capital to other productive assets. As property values rise over time, investors can generate equity in their properties despite the fact Principal repayments are not being made to the loan.

Interest-only loans also present potential tax benefits for investors. If interest paid on a loan is tax-deductible, then paying interest-only maximises that deduction for the investor. Banks and other lending institutions typically offer a fixed term for Interest-only Loans, with the most popular period being about five years, after which the loan can revert to P&I or the Borrower can simply repay the Principal all at once.

However, interest-only loans also have a high degree of risk. The Principal still needs to be repaid and opting for an Interest-only structure defers this obligation and increases the total repayments required to repay the loan. Furthermore, funding costs can significantly increase when the term of the loan expires, and P&I repayments are required. Lastly, it is important to remember that should the property depreciate, you could end up owing more than the property is worth.

Is interest-only for you?

This loan type is for you if you are a property investor who is confident with managing money (often useful with commercial and industrial property finance).  Astute borrowers can optimise their tax position and benefit from the lower repayments, weighing the rising equity of their property against the interest repayments and Principal amount. By the time the interest-only period ends, you should be able to repay a significant portion of the Principal as long as you’ve adequately managed your assets during the loan’s term.

Capitalised Interest

A capitalised interest loan is our most popular loan structure. It is suited for property developers and in the primary repayment type used in development finance. Instead of paying a monthly interest expense, the interest is ‘capitalised’ onto the Principal amount each month. Once the loan matures, the Borrower repays both the Principal and the accumulated interest in full.

Most developers have their cashflow committed towards the project they are working on, making monthly repayments difficult. Lenders in the development finance industry also have a preference to adopt capitalised interest repayments as it underscores one of the most fundamental funding methods in development finance; funding on a ‘cost to complete’ basis.

Funding on a ‘cost to complete’ basis is where the lender retains 100% of the cost to complete the project, no matter what stage the project is at. Under this scenario, Interest repayments are viewed as a project cost, meaning the lender will retain the total expected interest cost within their loan facility. Each month, interest is drawn from the ‘capitalised interest facility’ and applied to the balance of the loan.

One of the important things to note about a capitalised interest loan facility is that interest is charged on the drawn portion of the loan, so the amount capitalised onto the Principal is not static from month to month.

For example, you may only draw 20% from the Loan Facility in the first two months of work, so interest is only charged on 20% of the Principal. At six months and 60% drawn, interest is charged on 60% of the loan amount.

Is capitalised interest for you?

Simple: this loan structure is for you if you are a developer. Adopt a clear plan for your development and you’ll be able to repay the Principal and interest upon completion of the project.

Funds for construction and development loans are only drawn down from the Loan Facility as and when they are required to fund each stage of the build. Smart borrowers with a clear plan for their developments can capitalise on this structure due to its unique interest scheme, as the actual interest paid by the Borrower is typically between just 55% to 70% of the headline interest rate charged by the lender.

Furthermore, delaying the interest liability gives the Borrower time to generate revenue before they must repay the loan amount.

Talk to the leading property finance company in Auckland about which loan structure suits you.

Our lending managers are experienced in all areas of property development, and we tailor a bespoke loan package to suit your needs. Talk to the Kiwi leaders in non-bank property finance for a hassle-free lending journey today.

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.

Non-bank lenders tend to be privately owned and operated, which means they can adapt their services, fees, and company structure to create highly competitive packages for their clients. 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. Since moving to Alert Level 2, ASAP Finance has settled $13 million in construction funding, with a further $25 million in funding approved for new projects.

Let’s dive deeper into the benefits of borrowing from non-bank lenders.

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, 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.

Loose 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.

If you choose to move forward with a non-bank lender, you need to be sure of their reputation, capability and ensure that what they are offering is what you need. When it comes to working with ASAP Finance, our long history in property financing speaks to our experience, and our wide range of loans on offer and our bespoke capabilities open the door for everyone looking to fund their next development.

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.

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.

The COVID-19 outbreak will continue to cause significant adverse economic effects that will almost inevitably impair borrowers’ abilities to obtain and service mortgages. And unlike the mainstream banks – which can access new NZ Reserve Bank liquidity and funding support – non-bank lenders have a much more restrictive toolset to combat economic shocks.

Billion dollar initiatives to encourage lenders to provide cash flow support to small business have emerged, but they haven’t brought salvation for all sectors of the market. In particular, the Non Bank sector will be feeling pain as wholesale funders and investors reduce their risk appetites and, in some instances, pull funding altogether.

Fortunately, ASAP Finance is a family-owned business and private equity is supported by fixed-term funding lines from mainstream banks. This means we do not rely on wholesale funders or investors which provides us with cashflow certainty. However, there are other sector specific risks which all developers should consider when choosing their funding partner.

On an ongoing basis, development finance companies have an added layer of complexity when it comes to managing cashflow. Development funding requires lenders make progress payments to the developer/ or contractor generally on a monthly basis for completed works.

During the Global Financial Crisis (“GFC”), many developers were caught out when their financier failed to make those progress payments ultimately spelling disaster for their project. This is because development finance companies rely on recycled cashflow from mortgage repayments to fund progress payments.

Mortgage repayments can come from selling down completed stock once the project is complete, or by way of refinance once the construction risk has been eliminated. During times of crisis, low transaction volumes decrease the frequency of repayments, similarly the refinance market experiences a decline in liquidity as other lenders become less willing to take on new debt.

Simple strategies such as switching from loan origination to servicing existing clients can provide immediate cashflow relief during times of crises and could be considered best practice for even the most well capitalised development lenders. The catch-22 being that it decreases overall liquidity in the economy and can ultimately worsen the impact of a crises.

At ASAP Finance we endured the Global Financial Crises and are aware of the perils that can result from being unprepared for external shocks. We emerged strongly from the GFC and the lessoned learned continue to be implemented in the business today including always operating with sufficient margin of safety (we currently have $50 million in undrawn secure funds).

Over the past 2 weeks we have visited over 80 construction sites with more sites to be visited over the coming weeks. Our commitment to our clients during these time remains unchanged; our success is inextricably linked to the success our clients and we look forward to taking each and every project we are involved in, to completion.

The impact of the four-week COVID-19 lockdown imposed by the NZ Government on non-essential services will be far reaching for Kiwi developers. We continue to urge our developers in NZ to focus on ensuring the success of their commercial development projects during these uncertain times.

At a high level, property developers in NZ will be facing increased interest and debt-servicing costs, primarily because of delays to their construction projects. While such delays may erode profit margins, contingencies are built into construction project budgets for this very reason.

Identify Cost-Saving Opportunities for your Projects

Identifying any cost-saving opportunities for your construction development projects will help limit the impact on your bottom line. For example, one of our clients completing a staged land subdivision had included costs for ‘enabling works,’ for the later stages of the project within stage 1. While completing this work was economical when the project was viewed as a four- year development, removing them was a no brainer as it did not prevent the client from obtaining stage 1 titles and would ultimately reduce the debt the client would need to take on in the early stages of the project. Opportunities like this exist within all projects and can be as simple as rethinking the finishing chosen for bathroom and kitchen fitouts

Beware of Third-Party Risks

At a more hands-on level, we are encouraging all our clients to engage with their builders and contractors to manage any risk that may arise because of reliance on a third party.

Limited cashflow will test the financial solvency of main contractors, sub-contractors, and suppliers. Subcontractors—who work on low margins and high cashflow—are likely to be impacted the most.

Analyse who you are contracting with. Are they a large firm likely to have a greater degree of financial resilience? Or a small firm running on day-to-day cashflow? Ensure you have the council inspection records on hand, including producer statements, so there won’t be unnecessary project delays should you need to change contractor.

Review the Supply Chains

We recommend a full review of supply chains to understand what impact COVID-19 will have on access to materials. Be aware that a two-week delay from a supplier in China could result in a one-month delay to your project in New Zealand. Any shortcomings in the supply chain will cause project delays.

For those lucky enough to be in the planning stages, timelines will not be immediately impaired as most architects and designers will have the ability to work from home. However, with such uncertainty over the near-term future, now is a great time to ask yourself whether it’s feasible to move ahead with the project in the current environment.

Make no mistake, the return to normalcy will be slow and it is likely the Government will wind us down the Alert Levels in a staged approach. The extent to which this will continue to impact construction sites—and the broader economy—is unknown. But like most regulation, there will undoubtedly be delays in obtaining compliance, and additional associated costs.

There remains huge uncertainty as to what the working environment will look like post lockdown, and how this will disrupt development finance. But the shining light out of all of this is that demand for new housing appears to remain strong – particularly within the affordable housing category. We expect this sector of the market to remain resilient to any potential downturns and continue to see opportunities for property development projects.

Consult with ASAP Finance for Property Development Funding

As a developer in NZ, your opportunity to add value to your financial project has never been greater. As a leading property finance company in NZ, we know it is our job to support you during these times. Our goal is to help NZ property developers secure the funding they need to make their project a commercial success. Whether you’re planning a residential project or a large commercial build, we can help you get the finances you need. If you would like to discuss your property finance plans, get in touch with ASAP Finance today. Stay home and stay safe!

When attaining development finance, a key but often underestimated consideration for developers is accounting for Development Contributions (DCs). These costs are confirmed by a local council after lodging for Resource Consent. Getting a handle on what these costs will be prior to lodging for resource consent is key to understanding the profitability of your property project.

Furthermore, for land bankers, understanding future DC policy may significantly change your strategy as to how and when you lodge for consent. Below is a breakdown of Development Contributions from the property development perspective.  

What are Development Contributions?

DCs are levies imposed by councils on a developer and are raised as a contribution toward the cost required to upgrade and maintain infrastructure within a designated area. The size of these costs can vary according to the infrastructure requirements of the area, as well as the type and size of the proposed development being carried out (measured by the increased number of residential dwellings or Household Unit Equivalents — HUEs). 

In Auckland, developers looking to complete a subdivision typically incur DC costs of between $27,000 – $33,000 per lot, depending on location and infrastructure demands in the area. This is in addition to paying for private infrastructure works within their subdivision which are funded by the developer and is commonplace in any resource consent. 

In contrast, Levin, governed by the Horowhenua District Council, has no DCs. Instead, all infrastructure costs are effectively subsidised by ratepayers, a strategy which was adopted to incentivise development in the area. 

Why are Development Contributions important?

The purpose of DCs is to recover from developers a fair, equitable, and proportionate part of the total cost of capital expenditure necessary to service growth over the long term. So, the standard approach whereby councils’ charge DCs (as a percentage of total cost) isn’t altogether wrong. But how this is implemented can have a drastic impact on the supply of new sections. 

Simply increasing DCs to a level that fully recovers costs could have serious consequences for home buyers. This is because developers can simply add it onto their section price, pushing house prices further out of reach. 

Councils generally bank on the developer being willing to wear the cost or pass it on to the landowner or the house buyer. But economists have argued with house prices at maximum affordability levels, so developers won’t be able to keep passing these costs on to buyers. Instead, they will be building the cost of DCs into their feasibility studies, causing them to pay less for developable land to maintain their margins. This will result in lower profits for the existing landowners, rather than increased house prices for the final buyers. 

Real-World Implications in Property Finance 

For developers buying bare land, increases to DC levies pose a significant risk. For example, between 2016 to 2017 and 2019 to 2020, development contributions for Rotokauri catchment in Hamilton increased from approximately $30,000 for a standard resident lot, to $70,000—a 130% increase. To put that into context, a small twenty-lot subdivision that would incur DCs of $600,000 in 2016, would cost $1,400,000 today. It is easy to see how this can quickly make any development unfeasible.  

In addition, remember that DCs can rise over the course of a four- or five-year project. For land bankers, understanding current and future policy is key. At ASAP, we accelerated a joint venture development in Hamilton to lock in lower DC’s that were about to be raised by the local council. This made sense, as we were intending on starting works on the subdivision within the five-year time restriction often imposed on resource consents. 

For developers buying unconsented land, our message is clear: build in appropriate allowance for DCs. In addition, always allow for unforeseen increases in cost that may arise due to council changing the DC policy. 

Have experts by your side to navigate development contributions

Reach out to the experts at ASAP Finance today. We’re the leading non-bank lender in Auckland, offering investors access to a property finance company’s financial services with experienced developers on the team.  

From residential development to commercial property, we help with cash flow for all kinds of property investment projects. Talk to one of our lending managers about your next development project today.