A cautious residential market combined with the tightened lending practices of the Big 4 banks, sees developers continuing to seek out non-bank lenders to bring their projects to fruition.
The non-bank lending sector has been operational in Australia for decades, but has only just begun to come to the forefront of the residential property market due in large part to traditional banks moving abruptly away from the property market due to stringent APRA regulations and the Royal Commission findings.
According to our own Head of Lending, Clinton Arentz, the current market is being driven by alternative finance options.
“At Trilogy, we’ve been trading for 20 years with a similar concept and a similar product type to the banks, but what I think we’ve done in the non-bank lending space is enable the residential property sector to continue to operate despite current tight credit conditions…”
“One of the primary differences between us and the big banks is that we don’t obtain our capital from the same sources. Our funds are sourced in the marketplace at large, and as a result we have much more flexibility around making commercial decisions.
“That flexibility allows us to approach loan applications from a personal perspective; we deal with our clients directly and get very involved with their project planning to enable us to offer bespoke lending on a project-by-project basis to meet a developer’s specific needs.”
The flexibility of non-bank lenders is in clear contrast to the traditionally rigid lending practices of the big banks, which are driven by international banking standards (namely the Basel standards) and nationally regulated by APRA – meaning banks need to conform to fairly strict practices.
Non-bank lenders are also more focused on market forces and what their investors want to see their capital invested in – allowing them to take a more tailored approach to project finance where the merits of the borrower and the merits of the project are assessed individually and matched to the appropriate capital solution.
“A typical developer may discover that when they’ve gone to the bank, the bank won’t even talk to them unless they’ve got all the units sold or all of the land lots in a subdivision sold – and that’s just completely impractical for most projects.”
“Instead, if they approach a non-bank lender like Trilogy, and we’re comfortable with the project and it’s financial metrics, our lending allows the developer to get started when they want to, which may save several years of holding costs – making a profound difference to the financial viability of the project.”
Due to working with smaller loan values and smaller-scale projects, non-bank lenders are also able to offer higher loan-to-value ratios to ensure that the gearing is favourable to enable the project to commence in line with the developer’s timeframe.
In additional to greater liquidity and lower volatility, having a loan-book that is focused on smaller-scale projects also allows non-bank lenders to focus on projects that are outside major metropolitan centres and focus on developing projects in key growth corridors across the country.
“There are a lot of regional areas where non-bank lenders operate. Regional cities the size of Newcastle, Toowoomba and Ipswich tick over nicely and have completely different market dynamics that are largely unaffected by the metropolitan unit markets…”
“These markets are operating on different metrics, and our flexibility as lenders, our in-house experience, and working with a national panel of independent property consultants allows us to judge each project on its own merits, data surveys and expert analysis of supply and demand characteristics.
“Ultimately, when we’re reviewing a project, we’ll have a town planning report, an independent Quantity Surveyor’s report and an independent valuation – which our expert team with extensive experience in property and development will review and choose to either endorse a project or not.”
All of these factors – flexibility, agility and bespoke lending practices – are seeing an increase in residential developers seeking out non-bank lending solutions for their projects, and with current market conditions remaining difficult the trend is likely to continue.
Non-bank lenders continue to provide a crucial service to the residential property industry, where projects that may not have been able to secure finance are now coming online in key growth corridors across the country.
“The projects funded by Trilogy and other non-bank lenders don’t command the headlines in the newspapers like the big projects do, but they do provide the shelter and accommodation for the bulk of the Australian population.”
Trilogy is not a licensed credit provider and does not make loans FINA regulated by the National Credit Code. The source of Trilogy’s loans may include managed investments schemes registered with ASIC, as well as other private lending arrangements with high net worth investors. If you would like more details on our investment opportunities, then please contact us. The material on this website is intended only to provide a summary and general overview on matters of interest. Trilogy is only licensed to provide general financial product advice on its own products and does not consider your objectives, financial situation or needs when providing any information or advice. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.