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The focus of activity continues to be residential development, from small scale infill to large scale residential super lot development, with projects valuing from $1m to well over $50m.
Banks have continued their negative stance to all but the most prominent developers who can show substantial balance sheets. Combined with high levels of demand and an increasing number of borrowers being forced into the second-tier market by bank lending policies associated with debt to income and CCCFA rules, the lack of liquidity in the second-tier market has increased. As a result, we are seeing increased selectivity from the funders with a flight to those developers who can demonstrate strong track records and are undertaking development in central urban locations. Highly leveraged deals will be particularly challenged in the face of multiple more robust sales, all chasing a slim pool of funds. Those new to development and riding the current residential boom with small infill housing will face significant challenges in securing debt. This has been reflected in an increasing number of consented brownfield sites appearing on the market for sale.
Even the second-tier market's softer attitude on presales is under pressure given the number of quality deals chasing funds. We also anticipate increasing difficulties in securing presales as the market cools. Existing sale contracts fail to settle due to tighter mortgage lending rules, releasing completed or near-complete stock to the market addressing the latent demand and the willingness to buy off-plan and wait for front door keys.
We continually hear from developers who have been turned away from their typical funding source and are looking for solutions. With our significant network and flow of transactions, we are well placed to help secure what limited funding is available.
On the investment side, we see the banks lifting interest cover requirements and loading the interest rate used in their calculations, significantly reducing the amount of debt raised on a commercial investment. Available leverage has fallen to as low as 33% in some cases. Given these constraints, there is a high likelihood that this will be reflected in decreasing commercial values and increasing yields.
Commercial Insurance is a vital part of any financial risk management process. We have key relationships with the leading providers in New Zealand, offering solutions in covering the financial risk exposure clients will have. These solutions can protect short-, medium- and long-term risk events.
The purpose of any insurance is to pay a premium to pass on considerable financial risk to a provider. With Commercial insurance, this is an essential piece for the projects clients to have.
We work closely with Rothbury Insurance to provide protection such as Professional Indemnity, Contract works Insurance and, importantly, Commercial Property insurance facility, which is also market leading.