credit

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<p>SPONSORED POST</p>
<p>“A clear and concise marketing plan that will deliver the projected return”</p>
<p>Sounds simple…. yet we see so few doing it well and most don’t do it at all! For the most part, the key elements of a loan application are well understood by most developers and don’t vary much. Fundamentally they comprise: </p>
<ul>
<li>
<strong><em>Your financial position and credit worthiness</em></strong>: these are what they are and you can’t gild the lily trying to make them appear better than they are (although some try and fail);</li>
<li>
<strong><em>Gross realisation values and project expenses</em></strong>: completed product prices, land value and associated build costs are all fairly defined values. They will be determined by the market (via pre-sales and tenders on the build job) and certified by the relevant market experts (valuers and QS/engineers);</li>
<li>
<strong><em>The project team and past experience</em></strong>: again, these are relatively pre-defined components of your finance application and while you can enhance them with the introduction of appropriate expertise and testimonials, for the most part the key components have been locked in by the time the application is submitted;</li>
<li>
<strong><em>The capital structure and project feasibility:</em></strong> the combination of debt, junior debt and equity is generally driven by how much equity you have or choose to contribute to the transaction, and the project feasibility draws on the known elements of costs and end values and the time required to undertake the process. While many try and rush this part of the process, the one thing you can’t buy is time, but if you understand the market you are operating in, you can use it to your advantage!</li>
</ul>
<p>As lenders/investors contemplating financing and/or investing in your next project, we would argue that the key element most often missing from applications we see, and the one that you should arguably have the most influence over, is explaining to us how and to whom you are going to sell the product. </p>
<p><span style="line-height: 1.3em;">And it is not just your ability to sell the first 60% of the project in order to repay our funds that is critical, but how you will sell the last unit of stock, which represents your profit because that is what will convince us that you fully understand the deal you want us to invest in. So let’s look at what we actually want to hear/read about:</span></p>
<ul>
<li>
<strong style="line-height: 1.3em;"><em>Where will the demand for your product come from?</em></strong><span style="line-height: 1.3em;"> Too many developers fail to understand the market dynamics of supply and demand and who will be the buyers; </span>
</li>
<li>
<strong style="line-height: 1.3em;"><em>The second part to who, is</em></strong><span style="line-height: 1.3em;"> “</span><strong style="line-height: 1.3em;"><em>why” will they buy it?</em></strong><span style="line-height: 1.3em;"> Why does your product meet the identified demand and how have you gone about satisfying yourself this is so? Again, too many developers follow the herd. What we as financiers/investors want to see is a considered approach based on an understanding of the market and economic factors driving the product decisions. This doesn’t have to be a costly exercise with massive reports. Quite simply, we want to see that the developer understands the markets dynamics at play in the area he is choosing to develop, and that he has created a product designed to meet the relevant drivers;</span>
</li>
<li>
<strong style="line-height: 1.3em;"><em>Why is yours better than the one down the road</em></strong><span style="line-height: 1.3em;">? Again, this is simply another way for you to demonstrate that you understand what the market wants and what the competition is doing. Frankly, if you don’t know the answer to these questions you should be seriously reconsidering why you are a developer.</span>
</li>
<li>
<strong style="line-height: 1.3em;"><em>What will they be willing to pay for it?</em></strong><span style="line-height: 1.3em;"> And can you show evidence of similar product being purchased for that dollar value. Often the formal valuation report will be a precondition to settlement, and an approval will be required before it is produced. In its absence, we are looking for evidence to support the proposed Gross Realisation values in your feasibility. An ability to point to recent and relevant market sales in support of your assumptions is another way of demonstrating your professionalism;</span>
</li>
<li>
<strong style="line-height: 1.3em;"><em>How much will it cost to secure the sales and how will they be funded?</em></strong><span style="line-height: 1.3em;"> In order to attract these buyers, marketing collateral, and an on-site sales office, sales agents salaries, marketeers fees up front and back end are all important considerations which many developers pay minimal consideration to, often because they do not fully understand the issues involved. We cannot stress enough just how important these elements of the deal are, and how your understanding of them influences credit and equity investment decisions. In particular, how you propose to fund them before and during the project construction phases are key to us fully understanding the real profitability of the project.</span><span style="line-height: 1.3em;"> </span>
</li>
</ul>
<p>Simply put, more than anything else, if you can demonstrate a clear understanding of these marketing and sales related processes (and they are two very different beasts) you will get the attention of a lender or equity investor. Once you have our attention, it’s a much easier process to gain the approvals you are seeking. </p>
<p><em><span class="Normal__Char">To find out more about which option best suits your next project, contact Dan Holden at HoldenCAPITAL on 0401 669 502 or visit <em>HoldenCAPITAL <a href="https://www.holdencapital.com.au/" target="_blank">here</a>.</em></span></em></p>
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The one simple trick to make your property project finance application stand out: Holden CAPITAL

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<p>EXPERT OBSERVATION</p>
<p>The construction sector is in a cyclical downturn led by the housing sector, where conditions have swung from boom-to-bust.</p>
<p>Private new home building work fell by a further 3.4%, meeting our expectations, to be 11.6% below the peak of mid-2018. Renovations were broadly flat, -0.2%. The housing downturn still has further to go and will weigh on conditions into 2020.</p>
<p>Public works returned to adding to growth, increasing by 5.4% in the quarter. That follows a moderation over the past year (down 13.4%) reflecting a gap in the investment project pipeline. Our view has been and remains that public investment will be supportive of growth over the near-term, with governments continuing to commit to additional projects.</p>
<p>Private infrastructure provided a downside surprise, declining by 4.6%. The outlook is for some improvement. Commencements have picked-up somewhat (eg some iron ore projects have proceeded in response to the recent elevated prices) and the work pipeline has increased – pointing to an emerging lift in activity during the year ahead.</p>
<p><em><strong>ANDREW HANLAN </strong>is a senior economist for Westpac</em></p>
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Construction activity declined for a 5th consecutive quarter: Andrew Hanlan

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<p class="post-title entry-title">EXPERT OBSERVER</p>
<div id="post-body-36613851729109642" class="post-body entry-content">
<div>In May 2018, I noted that I didn't think we'd end up with a major housing crunch.</div>
<div> </div>
<div>Part of my reasoning was that 'lenders gonna lend'.</div>
<div> </div>
<div>In other words, just as we've used a knife and fork for more than 800 years, Australia's financial system has been deregulated for decades, and we still have four major banks, all of which need to lend money to make money.</div>
<div> </div>
<div>I felt this would insulate the housing downturn, despite the heavy macroprudential changes.</div>
<div> </div>
<div>What wasn't so clear at that time, at least to me, was the full impact that the Royal Commission would have on the appetite of lenders. </div>
<div> </div>
<div>In the event, a full seven rounds of public hearings was played out in front the media throng, and the final report wasn't delivered until last month.</div>
<div> </div>
<div>Accordingly there have been some nervous operators over the past year or so, and there was a very noticeable impact on mortgage processing and practices. </div>
<div> </div>
<div><strong><span style="text-decoration: underline;">Policy moves</span></strong></div>
<div> </div>
<div>The RC final report being submitted only in February 2019, this is all very much fresh in the memory, so any loosening of the credit taps is likely to be gradual.</div>
<div> </div>
<div>But still, with a smaller mortgage pie to be shared around - lending volumes are down by a fifth from a year earlier - and major banks having lost market share in recent years, I believe there will be some policy moves to win business and get mortgage book growth back into positive territory.</div>
<div> </div>
<div>It's only March, bear in mind, the month after the final RC report, but today we saw the first interesting move of any note, from ANZ Bank:</div>
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<div class="separator"><a href="https://3.bp.blogspot.com/-RLHPrcZuxFk/XIn45vh_1pI/AAAAAAAAu98/uLIiYyi0OloMf308ZHbLqUL6TF8JDBlrwCLcBGAs/s1600/Wemyss.jpg"><img src="https://3.bp.blogspot.com/-RLHPrcZuxFk/XIn45vh_1pI/AAAAAAAAu98/uLIiYyi0OloMf308ZHbLqUL6TF8JDBlrwCLcBGAs/s640/Wemyss.jpg" width="640" height="233" data-original-height="274" data-original-width="745"></a></div>
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<div>90 per cent LVR investment mortgages with a 10-year interest-only term should generate a bit of welcome business for ANZ (not to mention profit, since rates and have tended to be higher on IO mortgages). </div>
<div>
<br>And ANZ has generally been one of the more proactive lenders of late.</div>
<div> </div>
<div>Some context is due.</div>
<div> </div>
<div>Borrowers taking this option on a 10-year IO mortgage will see sundry borrowing capacity hampered, due to the way in which this mortgage debt is assessed.</div>
<div> </div>
<div>And, indeed, most IO loans don't run for 10 years. </div>
<div> </div>
<div>But it's a nice cushion for borrowers seeking IO certainty, and moreover it's the first positive signal of competition returning for investor borrowers. </div>
<div> </div>
<div>
<em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em><span> </span>
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Credit to loosen a little: Pete Wargent

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<p>Mrs Shilpa Karandikar and Mr Shrikrishna Karandikar of Clarinda, Victoria have separately appeared in the Moorabbin Magistrates Court on 3 October 2018 having been charged with offences against the National Consumer Credit Protection Act 2009 (National Credit Act) following an ASIC investigation. The matters were adjourned for mention on 5 December 2018.</p>
<p>Mrs Karandikar was charged with three counts of engaging in credit activities contrary to a four-year ASIC banning order against her. It is alleged that Mrs Karandikar had prepared and submitted home loan applications for three customers in contravention of the banning order made on 10 July 2014. That order was made on the basis that Mrs Karandikar had submitted false documents to secure a $243,000 home loan for a customer.</p>
<p>Mr Karandikar was charged with three counts of giving false documents to the National Australia Bank, certifying that he had completed customer identification forms in the presence of the home loan applicants, when it is alleged he had not met them. The home loan applications were submitted to the National Australia Bank through Mr Karandikar's former mortgage broking business, Siddhi Vinayak Finance Pty Ltd.</p>
<p>ASIC permanently banned Mr and Mrs Karandikar in December 2017 from engaging in credit activities. The basis for the permanent bannings included the continuation of credit activities and misleading and deceptive conduct.</p>
<p>The Commonwealth Director of Public Prosecutions is prosecuting these matters.</p>
<p>Background</p>
<p>The National Australia Bank identified the misconduct and reported it to ASIC.</p>
<p>Engaging in conduct that is contrary to a banning order, contrary to section 82 of the National Credit Act, carries a maximum criminal penalty of 100 penalty units and/or two years imprisonment.</p>
<p>Giving information or a document to another person, while engaging in a credit activity that is false in a material particular, or materially misleading, contrary to section 160D of the National Credit Act, carries a maximum criminal penalty of 100 penalty units and/or two years imprisonment.</p>
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Couple charged with breaking ASIC banning order and providing false documents 

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<p>Consumer groups have welcomed the announcement by the Australian Banking Association that bank customers applying for payment deferrals as a result of the COVID-19 pandemic will not have a missed payment or hardship flag appear on their credit file.</p>
<p>Importantly, this approach will apply across the board to all consumer debt, including mortgages, personal loans and credit cards.<br><br>Consumer advocacy organisations and banks have been working together to provide solutions for customers experiencing financial hardship as a result of the COVID-19 pandemic through the Australian Banking Association’s Consumer Outcomes Group. The ABA has worked with its member banks to ensure where repayment deferrals are granted due to COVID-19, credit reporting is conducted in a fair and consistent manner. This ensures clarity and minimises any risk of confusion by customers who have different credit products from the same bank.<br><br>This approach to credit reporting means that banks will not notify credit reporting bureaus of a customer’s missed repayments during the COVID-19 deferral period. This will give consumers peace of mind when entering into loan deferrals with their banks as their credit rating will not be negatively impacted.<br><br>They urge other credit providers to follow the banks’ example.</p>
<p>Fiona Guthrie, CEO of Financial Counselling Australia said, "financial counsellors are already getting questions from clients about the impact of COVID-19 related hardship on credit reporting scores. This puts the matter firmly to rest when it comes to interacting with the banks and we welcome it strongly."</p>
<p>"But this also shows why, when this crisis is over, this approach should remain in place. People are put off asking for hardship variations if they know it will hurt their credit report. No one chooses to experience financial hardship. When it happens we shouldn't be punished for it."</p>
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No impact on credit files during COVID-19 pandemic

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<p><span>ASIC has banned Mr Raghwa Nand Prasad from providing financial services and from engaging in credit activities for four years following an investigation.</span></p>
<p><span>ASIC found between February 2008 and March 2011, Mr Prasad contravened credit legislation and financial services laws, and was involved in Ms Prasad’s contravention of credit legislation and financial services laws. ASIC made these findings on the basis that, in respect of the seven loan applications which involved false documents created by Ms Prasad, Mr Prasad, among other things:</span></p>
<ul>
<li><span>was familiar with his clients’ financial situation, having acted as their tax agent</span></li>
<li><span>signed off on applications containing false documents without querying whether the application accurately represented his client’s financial situation</span></li>
<li><span>knew the application documents were false,</span></li>
<li><span>directed or allowed Ms Prasad to send the application containing the false documents to the lender.</span></li>
</ul>
<p><span>In May 2015, ASIC banned Ms Prasad for 10 years from engaging in credit activities and from providing financial services following her conviction for loan fraud. </span></p>
<p><span>In September 2014, Mr Prasad’s former wife and broker assistant, Ms Shashi Kanta Prasad, was convicted for creating false loan documents in an attempt to secure home loans totalling more than $3.6 million.</span></p>
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ASIC bans broker for four years

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<p>ASIC has permanently banned former credit representative Tony Nguyen from the credit industry following an investigation.</p>
<p>Mr Nguyen, of Bankstown, New South Wales, is banned from engaging in credit activities due to ASIC finding him "not a fit and proper person to engage in credit activities". His conduct involved multiple breaches of the credit legislation and was considered serious, repeated, and dishonest.</p>
<p>About September 2013 and February 2014, ASIC investigations found Mr Nguyen gave eight loan applications and 30 supporting documents to a lender which contained false information about the clients' income and employment. Among the false supporting documents were:</p>
<p>1.   13 payslips and 5 PAYG payment summaries stating that his clients worked for companies they had never worked for;</p>
<p>2.   2 payslips stating that the client earned a gross annual salary of $79,706 as a warehouse assistant when in fact he earned about $38,000 gross per year; and</p>
<p>3.   a notice of assessment, an income tax return and an income tax return estimate stating the client earned a taxable income of $273,998 from a nail beauty salon in Fairfield West when in fact the client earned about $50,000 and owned a nail beauty salon in Gosford.</p>
<p>ASIC found Mr Nguyen was acting as an unauthorised mortgage broker, providing credit assistance when he was not authorised to do so by an Australian credit licensee. </p>
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Nail beauty salon misinformation leads to ASIC ban on home loan broker

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<p>ASIC has cancelled the Australian credit licence of S &amp; S Enterprises Pty Ltd, trading as appliance rental business Rent To Own Appliances, after ASIC found it had entered into credit contracts where it charged consumers an annual interest rate higher than the 48 per cent maximum allowable under the National Credit Act.</p>
<p>ASIC found that Rent To Own Appliances charged consumers an effective rate of interest as high as 208 per cent.</p>
<p>In response to ASIC's concerns, Rent To Own Appliances has agreed to stop collecting payments on all current contracts and to allow consumers under these 'rent to buy' contracts to keep the goods being purchased under the contracts.</p>
<p>ASIC Deputy Chair Peter Kell said, 'Credit licensees must understand their obligations under the law and take compliance with those obligations seriously. This includes understanding the limits in the law about maximum interest rates which they can charge consumers.</p>
<p>“As this case demonstrates, ASIC will remove those licensees from the industry which fail to meet their obligations under the law”.</p>
<p>Rent To Own Appliances has agreed to maintain its membership with an external dispute resolution scheme, the Credit &amp; Investments Ombudsman (CIO), for a period of at least 12 months after its' credit licence is cancelled.</p>
<p>Consumers who entered into a contract with Rent To Own Appliances and have any questions should contact Rent To Own Appliances on (03) 5964 6512 or 0433 585 130 to discuss the matter. Any consumer who is not happy with Rent To Own Appliances' response should contact CIO on 1800 138 422.</p>
<p>Rent To Own Appliances' credit licence (credit licence number 392764) was cancelled with effect from 26 October 2016.</p>
<p>A 'rent to buy' contract is an arrangement where you agree to purchase an item (for example, a fridge or television) by 'renting' that item for a set period of time. You make regular payments, for example, every month, over the agreed period (say 3 years). Under the terms of the agreement, you are not actually hiring the goods but you are making a commitment to buy them. At the end of the rental period, you own the goods.</p>
<p>Rent to buy contracts are treated under the law as credit contracts and have a maximum allowable annual interest rate of 48 per cent. For more information, refer to the Rent to buy factsheet on ASIC's MoneySmart website.</p>
<p>Rent To Own Appliances entered into credit contracts with consumers for furniture and household appliances. It operated a website (www.renttoownappliances.com.au) and traded from Lilydale in Victoria.</p>
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