Developer demand for bank-alternative mortgages surges

Media Release

22 August 2016

Private property developer demand for bank-alternative mortgages surges

An environment characterised by soaring demand for housing and a passive stance imposed by New Zealand’s trading banks has placed companies like Omega Capital Corporation in a position of strength.

The Hamilton mortgage broking house is one of the largest regionally-based companies in its industry, which focuses on commercial lending. Omega services a nationwide need for finance and equity solutions for commercial, rural, business and residential clients.

“In our six years of operation, the biggest change has come in the past two. We’ve seen the demand for finance from private property developers nearly double. This is directly attributable to the trickle-down effect of land shortages, primarily in key population areas, and the massive surge in demand for houses,” said Omega director Scott Massey.

Driving the demand for housing is confidence among New Zealanders in home ownership as the best form of investment. A recent ASB Bank survey showed that 21 percent of those approached believed their ‘own home’ was by far the best investment, up from just 14 percent at the end of 2015.

“Omega Capital is currently seeing a notable increase in the numbers of people with sizeable land blocks in populated areas who are electing to subdivide and build perhaps four, six or eight townhouses on the space.

“The search for financing for those types of creative solutions to land use is increasingly being directed to independent companies like us rather than the banks,” explained Massey.

He said the company’s flexibility in today’s tough market space is a big plus for such developers and something banks rarely offer.

The company generally facilitates property loans between $500K and $20 million, and clients seeking development funding with Omega can secure finance loans even after their request has been declined by banks. The company is able to source funds from the trading banks and finance companies, and has private lenders willing to debt or equity-fund projects.

Omega Capital general manager Alex Matheson said trading banks’ lending criteria for development type loans appears to have tightened further still.

“Omega is seeing a continuous flow of proposals for small to medium-sized residential building developments and residential subdivisions,” he said, “particularly in the main centres such as Auckland, Tauranga and Queenstown, where there is high demand for sections for new house building, and from house and land buyers for completed housing.”

He suggested trading banks could be doing more to speed up the supply of residential land and new house builds, and said: “A greater supply of developed sections ready for building, and more builders being prepared to build spec houses are the key to solving the current out-of-balance housing supply/demand cycle. There appears to be a lack of support from the local banks for this.”

Mr Matheson said it was for this reason that Omega’s workload had “never been higher, and we are forecasting the present level of high demand to continue until at least 2018.”

“Omega’s funders see the market as low risk for both residential and commercial building. They are more willing to support developers than the trading banks and apply less stringent loan criteria.

“However, the costs of finished developments are higher than if bank-funded, and inevitably this is impacting on the land prices for new houses.”

ENDS

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