Lenders most keen to finance townhomes, avoiding land: CBRE

Lenders are keen to finance townhome development above all other asset classes including apartments, with seven in 10 local non-bank lenders in a study indicating this is their preferred option for new construction loans.

A new lender survey by CBRE Research finds that lending in industrial real estate is well favored, but financing subdivisions is not as popular as those two sectors, nor are condos.

The asset classes most preferred by lenders for new development or construction loans have been named.

Head of research Zoltan Muric said the survey showed that subdivision lending led to a more polarized outcome, with only three out of 20 lenders saying this was the most favourable.

Although townhomes are very popular, there are some drawbacks: Developers must achieve high pre-sales to be able to get their financing applications.

“Appetite for development lending is shifting towards terraced/detached housing types. Compared to last year’s study, there is a significant increase in pre-sales requested as proof of concept and to help reduce concerns about settlement risk,” the study found.

Things don’t go well when lending for building house/terrace projects.

the Announce It was reported this week that two blocks of Takapuna homes are for sale with mortgage.

CDF Wealth, owned by Hong Liu, owns 42 and 44 Byron Ave where the residences were built, with a mortgage on Brilliant Luna Opportunity titles, which are not registered with that country’s Companies Office.

Bayleys’ Corey Knapp has advertised all the places in the three-story units that no one has ever lived in, and it’s not the only foreclosure group sale.

In a separate deal, China Construction Bank (NZ) has requested loans to purchase several units at The Victor at Browns Bay.

Developers have set up their own tertiary deposit-taking funds to avoid financial constraints in recent times, offering investors between 8 and 10 per cent for putting hundreds of millions into such schemes.

The CBRE survey found a decline in interest among financiers in less popular areas of the property sector such as hotels.

Twenty lenders whose names were not mentioned participated in the survey, including seven international lenders and 13 local lenders.

Of these 13 local lenders, three were banks and 10 were non-bank financiers.

Of the seven overseas lenders, three were banks and four were non-bank lenders.

Industrial property is the most popular asset class for investment lending.

CBRE found that lenders are still open for business but at a higher cost and with wiser loan-to-value ratios and interest rates as well as requiring more pre-sales.

“The willingness to lend shows a slight improvement compared to last year. The survey showed that this improvement is mainly due to investment rather than development loans.

Banks said they had a greater appetite for lending, but anecdotally remained reticent when offering new deals and focused primarily on servicing existing clients.

The survey also looked at the preferred asset class for new non-construction lending, ranking it from first to ninth.

Industrial sectors led the way, followed by residential units for rent or build-to-rent, then offices, residential units for sale, office value-added, then large format retail, accommodation, retail and other alternatives.

Lending to retail projects – with the exception of large projects – was viewed less favorably than the industrial or residential sector.

Build to rent was not any bank’s first preference, but nearly three-quarters rated it as the second to fourth most preferred category. Lending to the commercial or office sector remains very popular, ranking third after the industrial and residential sectors.

The CBRE survey found that nearly half of financiers can lend at a loan-to-value ratio of 60 percent or more, especially international non-bank lenders.

Anne Gibson was AnnounceHe has won numerous awards and written books and has covered real estate extensively here and abroad.