Rise in developer demand for non-bank mortgages

by NZ Adviser24 Aug 2016
A Hamilton mortgage brokerage specialising in commercial loans has seen a surge in demand from private property developers looking for a non-bank mortgage. 

Omega Capital director Scott Massey says the company is in a ‘position of strength’ in the current environment of soaring demand for housing. 

“In our six years of operation, the biggest change has come in the past two,” says Massey. “We’ve seen the demand for finance from private property developers nearly double. 

“This is directly attributable to the trickle-down effect of land shortages, primarily in key population areas, and the massive surge in demand for houses.” 

He said Omega is noticing a hike in people owning sizeable land blocks in populated areas and choosing to subdivide and build up to four, six or eight townhouses on the plots. 

“The search for financing for those types of creative solutions to land use is increasingly being directed to independent companies like us rather than the banks,” said Massey. 

He said the flexibility they can offer developer clients gives them an edge over banks in the current tough market space.

Omega generally facilitates property loans between $500K and $20 million, and clients seeking development funding with them can secure finance loans even after their request has been declined by banks, the company says. 

Omega Capital general manager Alex Matheson said trading banks’ lending criteria for development type loans appears to have tightened further still.

“Omega is seeing a continuous flow of proposals for small to medium-sized residential building developments and residential subdivisions,” he said, “particularly in the main centres such as Auckland, Tauranga and Queenstown, where there is high demand for sections for new house building, and from house and land buyers for completed housing.”

He suggested trading banks could be doing more to speed up the supply of residential land and new house builds, and said: “A greater supply of developed sections ready for building, and more builders being prepared to build spec houses are the key to solving the current out-of-balance housing supply/demand cycle. There appears to be a lack of support from the local banks for this.”

Matheson said Omega is forecasting the current high demand to continue until at least 2018.

“Omega’s funders see the market as low risk for both residential and commercial building. They are more willing to support developers than the trading banks and apply less stringent loan criteria. 

“However, the costs of finished developments are higher than if bank-funded, and inevitably this is impacting on the land prices for new houses.”

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