How Auckland’s high rates of new dwellings are impacting investments
We are seeing a surge in loan applications for construction projects around the country, and particularly in Auckland. We’re hearing that the banks are tightening their construction lending criteria, which is creating high-quality investment opportunities for us.
Looking back over the last year or so, each month an average of 1,200 new dwellings were completed in Auckland (year to date August 31st). That’s up a third compared to the year prior and demonstrates the scale of opportunity in Auckland alone.
Even as the country was plunged into lockdown, the number of new homes completed in Auckland remained steady at 1,147 in August.
After years of strong growth, some pundits are starting to wonder if the figures suggest that the growth is now flattening off, and if the numbers may even start to decline slightly.
But more so than the number of houses completed, your investments are impacted by the banks appetite to lend and our ability to attract high quality developers to borrow from us.
We are only interested in high-quality construction lending and take a particularly conservative approach.
It’s easy to feel the heat and excitement of Auckland’s construction market, but after nearly 25 years in the game we’ve lived through our fair share of boom and bust cycles.
It’s one of the reasons we use conservative loan to value ratios. We only lend up to 65% of a project’s completed value. This gives us a buffer if things change during construction. In addition, we also always have contingencies in place in case costs increase mid-build.
We also mainly work with people we already know. The majority of our loan applications now come through advisors and developers we’ve worked with before. However, we still apply rigorous checks to make sure our developers and builders don’t have supply or personnel issues related to each specific project.
Then we still split lending across multiple progress payments and get photos or visit construction sites frequently. This ensures we are lending money in parallel with the developments progression.
This cautious approach to lending has served us well over the years. It means if Auckland keeps pumping out 1,200 new homes a month, or if this figure changes drastically, we’ve got the right processes in place to manage investments.
