Non-bank lenders grab an opportunity as banks scale back loans

The Australian 2:29pm June 26, 2017

Richard Gluyas

BFCSA Warning:  There is NO enforcement of law in Australia re the Major Banks and the laws for consumer protection for clients of Non-Banks have been watered down by the current Government.  We are well into buyer beware.  Mortgage Loan Contracts are a wad of hidden dangers and tricky clauses.

 Despite the hype about selective “postcode blacklists”, the majors have responded in a much more generic way to APRA’s crackdown on mortgage-heavy loan books.

The sector’s retreat from development finance means that the credit tap has almost been turned off for new projects, although there’s been some renewal of interest in recent weeks.

The disruption to the market has been significant, which is exactly what the Australian Prudential Regulation Authority would have wanted.

Credit rationing has reached a stage where the majors won’t write a cheque exceeding about $90 million for a residential development.

Effectively, that means the debt package for any development worth more than $180m has to be farmed out or syndicated, which has opened up a sweet spot for non-bank lenders such as Melbourne-based Qualitas.

Last month, Qualitas raised $500m of institutional capital, closing the first round of a multi-billion dollar construction finance program for residential and commercial projects.

The new fund will provide capital at a loan-to-valuation ratio of up to 75 per cent for projects that meet its “robust” risk assessment criteria.

Qualitas, as a result, can write a single cheque which is at least the equal of a major bank’s $90m maximum.

This has not only led to an influx of proposals from potential clients who would previously have gone to the majors, but also a flood of job applications from senior bankers who are following the money trail.

In recent months, the company has hired Mark Power, National Australia Bank’s ex-director of corporate property for Victoria and Tasmania, as director of real estate finance, and ANZ Bank’s director of institutional property for Victoria, Gil Norwood, as director of real estate.

While there’s a lot of nervousness around the world about activity migrating to the unregulated, non-bank sector, those concerns should not extend to Qualitas because there is no debt at the fund level.

Sure, there’s borrowings at the asset level, but that’s no different to any bank’s exposure.

Qualitas believes that strong underlying demand will support the apartment market, with net migration set to continue and policymakers keen to boost housing density to mitigate the need for infrastructure spending.

As to supply, chief executive Andrew Schwartz reckons the current concern about an eastern seaboard oversupply will switch to an undersupply by 2020-21.

He argues the cranes that currently dominate the skyline are of the 2014 and 2015 vintage, with significantly less project starts this year and that trend to continue in 2018.

While a sweet spot has opened up, the major banks will still dominate the $260 billion real-estate debt market.

For every 1 per cent of the market they vacate, a $2.6bn opportunity opens up for the likes of Qualitas. It’s more than enough to keep them busy.