Developers working on specialised projects are finding it difficult to obtain loans
Developers working on specialised projects are finding it more and more difficult to obtain loans from big banks as interest rates continue to climb.
Caravan parks, service stations and warehousing for specialised manufacturing are among the assets having a difficult time getting the funds needed to complete projects, The Australian reported.
Scott Roberts, managing director of private lending firm IBN Private, said he doesn’t see credit getting any easier over the next 12 months.
“We’ve got one project we are lending on at the moment who hasn’t been able to obtain funding anywhere because it is such a specialised security,” Roberts told The Australian. “Low LVR, good location, but because of its nature, if that goes into default, who do you sell it to? They’ve probably been to 50 mortgage brokers, 100 lenders, and then he’s come to us. Like many other deals we see, they are sometimes good developments that the lender just doesn’t or cannot get their head around. Having lenders or investors who understand your project and are willing to work through difficult times is becoming a must.”
The construction boom has been largely profit-free for builders and developers thanks to skyrocketing costs and supply chain issues driven by pandemic lockdowns and the war in Ukraine, The Australian reported.
Big banks account for the potential impact of interest rates, inflation, input costs and general market conditions when deciding whether to lend for commercial projects. But the cost of accessing trades and securing materials are currently the key deciders on a builder’s borrowing capacity.
Mark Couter, commercial banking executive general manager for Commonwealth Bank, said that projects from commercial property investors and developers were being actively considered across a wide spectrum of asset classes and markets.
“Over the past 12 months we have been closely monitoring construction costs,” he told The Australian. “We are working with our customers on a forward-looking basis, to help assess working capital requirements and support them with working capital finance solutions as they manage through longer cycles.”