In recent years developers who have a sound track record, have for the most part been able to utilise the benefits of a rising market as means of increasing their gearing, effectively accessing capital to invest in future site acquisitions or to address rising costs if the appropriate lender requirements can be satisfied.
Primarily this means that if you can demonstrate increased gross realisation values via an acceptable valuation report based on acceptable pre-sales or well defined comparable sales, there is scope to have gearing increased but you need to understand that this is always at the discretion of the lender.
While we have seen a constantly rising market now for some years, and in the current inflationary environment some might expected this to continue, but it doesn’t necessarily follow that lenders will agree to increase their exposure. There is evidence in some markets that prices are topping out with the potential that they could fall, and consequently, lenders will err on the side of caution when assessing those sales, particularly as they still have a settlement risk. At present with most valuations supporting the sale prices this is minimal, but if there was a clear downturn in market values this settlement risk becomes real so while you may have achieved sales above the original valuation projection, the ability to enforce their settlement could become less certain as purchaser finance option dry up.
As with all things, common sense needs to be applied and if you think you have an issue, get to the bottom of it quickly, formulate a sensible strategy and share it with your financier as soon as possible. They don’t like bad surprises and will be more likely to help if they can see you have been on top of things and mapped out viable options.
To discuss your funding requirement contact Dan Holden on 0401669502 or dh@hcp.fund