A Sydney broker has said that up to 80 per cent of his commercial deals, mostly residential property developments, are still being funded by domestic banks and some of the majors despite widespread reports of tighter credit.
Speaking to The Adviser, Acuity Funding managing director Ranjit Thambyrajah said that while the banks have certainly tightened up on the credit front, such tightening has actually been a blessing for his business.
“I’ve been waiting for them to get tighter because it has really given us an opportunity to shine in the market. We’ve been able to secure funding from the major banks and it has actually reduced our competition,” Mr Thambyrajah said.
“A lot of commercial brokers have stopped using banks, but we haven’t. About 80 per cent of our deals, whether they’re residential developments or larger high-rise projects, go to the Australian banks.
“However, a lot more work needs to be done. We need to spend a lot more time qualifying the client.”
Mr Thambyrajah’s comments come as commercial brokers are increasingly turning to overseas private financiers to secure funding for their Australian clients.
Three-time Australian Broking Award-winner Dan Holden of HoldenCAPITAL recently told The Adviser that he has been making regular trips to Asia to source finance for developers.
From 2015 to the first quarter of 2017, the proportion of loans HoldenCAPITAL directed to the major banks plummeted from 67 per cent to 20 per cent. Mr Holden attributed the sharp decline to regulatory controls on investment and real estate development lending put in place in 2015.
Meanwhile, Vow Financial broker Michael Delany of Delany Financial said that he has had his most successful year in construction finance without any help from Australia’s major lenders.
Acuity Funding has purposefully decided not to source funding from overseas, Mr Thambyrajah said, “for the sake of the client”.
He said: “Going down that road is no different to going to private lenders in Australia prior to the GFC. The problem is, you never know when they are going to run out of money. When something goes wrong and you have to go back to the institutions, it can be a problem.”
The Sydney broker explained that offshore funders “don’t really have a handle” of Australian credit policies and he has seen a number of clients run into trouble by sourcing money from private funders abroad.
“A number of the clients we are now taking to the banks have had borrowings with overseas lenders, but the legal structure they have tied them up in is so complex it is impossible for them to do business,” Mr Thambyrajah said.
“We have had to do a lot of cleaning-up of security documents to actually enable them to achieve what they want to achieve. Some of the charges they take over the client are excessive and unnecessary.
“In many instances, we have also had to refinance their overseas loans. There is a huge amount of risk involved.”
While he still uses overseas funders on certain deals, Mr Thambyrajah said that it is never his first option.
“I’d prefer to put a client with an Australian non-bank lender on a slightly higher rate than with an overseas private funder on a lower rate,” the managing director said.