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MFAA Prosper : Mortgage and Finance Brief 07
The Reser ve Bank of Australia released data in early December showing that costs for small business loans have accelerated by 2.2 percentage points since the beginning of the global financial crisis three years ago, despite the fact that, like mortgages, they are generally secured against houses. However retail mortgage rates have only climbed about 1.2 percentage points relative to the RBA's official interest rate in the same period. ANZ defended the small business lending practices of the big banks in its submission to the Senate inquir y: "Interest rates set by the banks must take account of the risk of lending money." ANZ said that its small business delinquency rate had "more than doubled" since 2007. Banks had to hold more cash for the lending they made to small businesses, "given the higher probability of default and loss". Some defaults and losses are being caused by bank ner vousness and tightened lending standards causing LVR problems, say brokers. But, on the bright side, evidence is building of a significant shift in the commercial property and business market. Ready to pounce Wealthy families, private investors and fortune hunters are moving in where risk-averse banks fear to tread. Revaluations, sometimes forced by banks, are creating "distressed" or even mortgagee-in-possession properties with good prospects at bargain prices. It may not be pretty for the vendor, but it is a bargain for cashed-up purchasers. The big money is looking for bargains said John Macalyk from Sydney-based AAA Mortgages. "There are plenty of smart people out there right now who sat tight through the storm and are now looking around to pou nce on good distressed assets," said Macalyk. "But they want payback too for their risk." Non-banking money moves in Brian Kelly from WHK Finance in Melbour ne isn't seeing any great boom in distressed property sales but does see non-bank money moving in. "Property lending is in gridlock and it will be years before it improves. Melbour ne's doing well, unemployment is low, and distressed sales aren't a huge part of my cur rent business but there is cash around ready to pounce, as always I suppose." In Queensland, however, things are ver y different. Commercial property values are off 20% to 30% in some areas. Gold Coast "mortgagee in possession" sales continue to attract a lot of interest. Tim Munro from Specialised Business Solutions in Brisbane says private equity is often the best or only option for developers br uised and battered from dealing with bank credit departments. "Yes you do pay more," says Mu nro. "I did a private deal this mor ning for about 10.5% as against a bank in the 8s. Plus you are looking at higher set up fees maybe 1% to 2% of the loan amount. You may pay 12% or 14% but if you get in and out of a deal in 18 months and you don't need to discount to get pre-sales for a bank, then it can be a better option. "Often these days it is the only option. Banks want 100% pre-sales sometimes, always 50 -- 75% minimum so there is no risk for them in lending but they are still pricing for risk. Developers are working out that if I don't have to discount for pre-sales, a more expensive private credit option might be cheaper," says Mu nro. "What private equity has is the opportunity to pick the eyeballs out of the market, to grab the great opportunities, a good number of which have been created by the banks. But private equity likes easy deals, no r ubbish." Private affair With major lenders tightening commercial lending criteria, private equity funding is increasingly proving an interesting alternative. Words Jason Br yce “Developers are working out that if I don't have to discount for pre-sales, a more expensive private credit option might be cheaper.” 24 | Mortgage & Finance brief
Mortgage and Finance Brief 06
Mortgage and Finance Brief 08