Life for the property investor is tough and likely to get even tougher. Popular media, property experts and even the government is laying much of the blame for skyrocketing house prices at the feet of property investors.
With banks tightening LVR ratios for investors, investors might find themselves left with very few options for funding investment property. However, there are options for property investors outside of the main banks, especially if the plan is to build new dwellings.
There are a lot of investors today, especially in Auckland, who own land that can accommodate a number of new dwellings based on the provisions of the Auckland Unitary Plan. However, their development proposals often get rejected by the banks because it doesn’t fit the criteria of the banks. However, there are options outside the banks which an investor could explore to get their project completed. A completed project is far easier to place with the banks as all banks love lending on new dwellings as long as the investor can meet the servicing test. While non-bank options may be a bit more expensive than banks, it is still a very viable option as the typical tenure of a non- bank loan during the development phase would be 12-24 months; once the development is completed the investor can move to one of the banks (or near bank providers) and park their investment for the long term. It is important to remember that we are in an environment of some of the lowest interest rates ever seen.
The example below is typical of many investors that we have funded in the last 2-3 years
As you can see, the final result from the development is that equity increases from $700K to over $2million and yield goes up from 2.8% to 4.4%. Moreover, new houses typically attract better rent, maintenance cost is extremely low and would meet the new standards for residential rental properties.
So, for those investors wanting to increase/expand their rental portfolio by building new dwellings don’t be disheartened if the bank has rejected your development proposal. There are non-bank options which could potentially assist in achieving your development goals.
Parash Sarma is Client Services Director at ASAP Property Finance Specialists based in Auckland. Phone 021-864730. Email: parash@asapfinance.co.nz
