Are Non-Bank Lenders “Filling the Gap” in Commercial Property?
Australia has been experiencing housing supply shortages due to several factors. From rising construction costs, delayed materials supply, inflation, and continuous interest rate hikes for commercial loans, homes, and rental unit supplies have been unable to accommodate all the demand.
Traditional banks have scaled back lending due to higher risks associated with commercial property loans.
Hence, investors are seeking other sources of funds. One sector providing an avenue for investors? Non-bank credit lenders. These institutions are increasingly more relevant amidst the country’s housing bottlenecks, as they provide alternatives for commercial property borrowers who cannot be serviced by banks that scale back construction lending.
What are Non-Bank Lenders?
Non-bank lenders do not hold authorised deposit-taking institution (ADI) licences, which means they do not offer savings accounts, term deposits, and consumer deposit products. But they are still regulated, being required to comply with Australian Securities and Investments Commission regulations, Consumer Laws, and National Consumer Credit Protection Laws, and hold an Australian Credit Licence.
Even without deposit licences, private lending already has around $75 billion per year in credit housing market shares.
The non-bank lending sector represents less than 5% of outstanding credit in Australia, but it is steadily grown since 2015 as per Reserve Bank of Australia (RBA) data. This growth primarily revolves around mortgage lending, with an increasing number of substantial lenders branching out into vehicle loans, self-managed super funds (SMSF), and both residential and commercial construction.
What Non-Bank Lenders Offer
Investors kept a cautious outlook in 2022 with cash rate hikes and construction delays, but many are still willing to invest in real estate provided they find quality programs, even though 2022 seemed a distant time and place from where we find ourselves now. As traditional banks have enforced more stringent commercial property lending requirements, investors are leaning toward private credit lenders.
The reality is many Australian investors (individuals and SMEs alike) fit the borrower profile that private lenders can cater to. While big banks are more set in their serviceability requirements, i.e., credit score, collateral, etc., non-bank lenders tend to be more accommodating.
For ThinkTank CEO, Jonathan Street, their private lending performance sound and conservative underwriting policies that support income-producing property development. He notes that non-bank lenders are often more adaptable to market demands, focusing on specific borrowers and market segments seeking alternative loan products.
Not All Commercial Property Are Equal
Non-banks offer a helping hand to investors who are turned down by traditional banks. But there are certain real estate assets that have better potential than others.
Investors in the residential market, in particular, the build-to-rent sector, warehouse construction, and industrial property have the upper hand over office and retail spaces.
Lenders prioritise the chronically undersupplied residential market as well as the resilient industrial property builders, and for good reason: investors expect returns from 9% to 11% often with a 30-40% equity buffer.
So going non-bank is still going to be a tough proposition for investors who want financing for office and retail segments. Until work-from-home and online shopping growth stalls, lenders will be less keen on these brick-and-mortar properties.
Want to explore borrowing from non-bank lenders? Let our loan professionals guide you. Reach out today for a free consultation.
