Lenders are keener to fund townhouse development above all other asset classes including apartments, with seven out of 10 domestic non-bank lenders in a study indicating that is their preferred option for new construction loans.
CBRE Research’s new lender sentiment survey found industrial property lending is well favoured but funding land subdivisions is not as popular as those two sectors, nor apartments.
Lenders’ most-preferred asset classes for new development or construction loans were named.
Research head Zoltan Moricz said the survey showed land subdivision lending produced a more polarised result with only three out of 20 lenders saying this was most preferred.
Although townhouses are popular, there are some riders: developers must achieve high pre-sales to get their funding applications over the line.
“Appetite for development lending is towards terrace/townhouse dwelling types. Compared to last year’s survey, there is a significant uplift in required presales as proof of concept and to help reduce concerns around settlement risk,” the survey found.
Not all goes well with lending to build townhouse/terrace projects.
The Herald reported this week on two blocks of Takapuna townhouses up for mortgagee sale.
CDF Wealth, owned by Hong Liu, owns 42 and 44 Byron Ave where the residences were bult, with a mortgage over the titles to Brilliant Luna Opportunity, not registered with the Companies Office in this country.
Bayleys’ Corey Knapp advertised all places in the never-lived-in, three-level units and it’s not the only mass apartment mortgagee sale.
In a separate transaction, China Construction Bank (NZ) called in loans on many units at The Victor at Browns Bay.
Developers created their own third-tier deposit-taking funds to sidestep financial constraints lately, offering investors 8 to 10 per cent to put hundreds of millions into such schemes.
The CBRE survey found lower appetite amongst financiers for less mainstream areas in the property sector such as hotels.
Twenty lenders who were not named participated in the survey including seven international lenders and 13 domestic.
Of those 13 domestic lenders, three were banks and 10 were non-bank financiers.
Of the seven offshore lenders, three were banks and four were non-bank lenders.
Industrial property is the most popular asset class for investment lending.
Lenders remain open to business but at a higher cost and with more prudent loan-to-value ratios and interest rate cover as well as requiring more presales, CBRE found.
“Appetite to lend shows a small improvement compared to last year. This improvement is mainly for investment rather than development loans,” the survey showed.
Banks said they had a greater appetite for lending, but anecdotally, they remained conservative when viewing new deals and were primarily focused on servicing existing clients, CBRE said.
The survey also examined the preferred asset class for new non-construction lending, ranked one to nine.
Industrial headed that, followed by residential to rent or build to rent, then office, residential to sell, office value-add, then large-format retail, accommodation, other retail and alternatives.
Lending for retail developments - except for large format - was viewed less favourably than industrial or residential.
Build to rent was not the top preference for any lender but nearly three-quarters ranked it as the second to fourth most preferred category. Lending to the commercial or office sector remains popular, coming in third after industrial and residential.
Nearly half the financers could lend at a loan to value ratio of 60 per cent or more, especially the international non-bank lenders, CBRE’s survey found.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.