How Will Trump’s Win Affect Commercial Property?

Trump and Commercial Property

WHILE THE WORLD may be stunned by Donald Trump’s win, you’ll most likely find things will not be nearly as bad as everyone thinks.

And that’s reflected in the huge rebound in the stock market — once investors began studying his policies in more depth.

How did Trump achieve the Win?

In many respects, the media is responsible for the outcome — because so much airplay was given to his outlandish rhetoric. [Read more…]

APRA Cracking Down on Commercial Property Investment Loans

AS MANY INVESTORS would already be aware, borrowing for investing in property has become increasingly difficult over the past 12 months.

And that's because APRA (the banking regulator) has issued a warning to major banks to reduce their exposure to investment property loans.

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Recent Changes to the Lending Environment

THE CURRENT LENDING environment has changed markedly over the last two months with the main developments being:

  1. Lending to foreign investors has been severely restricted or entirely removed by all Australian banks.
  2. Interest Rates have been cut, with the drop passed on for owner-occupied loans and partially passed on for investment loans.
  3. Concerns have been raised about housing oversupply in certain parts of the country, including Melbourne and Sydney, and lenders have placed increased restrictions on higher density developments. 
  4. Some banks have been advised that their loan books are too heavily weighted to property investment (including commercial) and have thus pulled back their lending ratios.
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Commercial Finance for Business

business-finance

IN THE CURRENT low-rate environment, demand for property funding has spiked considerably over the past couple of years, fuelling some concerns in various quarters for a property bubble.

As a result, most of the major banks have loan portfolios heavily weighted to property.

Slowly but surely, this has resulted in increased competitiveness for the small business sector, which has resulted in some attractive terms being offered for small business loans.

Below are some tips about business loans in the current market. These will be useful if you are looking at purchasing a small business or expanding your existing business:

Borrow at Home Loan Rates

If you have equity in residential property, you may be able to borrow at home loan rates.

The major banks tend not to allow business purpose for loans through their home loan departments, and will unnecessarily sell their customers into more expensive business loan products.

If you have equity and can afford the repayments, there is no reason to have a bank overdraft (sold at rates up to 13% pa) or even bill facilities that are subject to frequent review.

Before taking out a business loan secured by a residential property, explore the market for possible home loans for business use, they will be much cheaper and more flexible.

A suitably qualified mortgage adviser will be able to do this for you at no cost.

Loan Terms are as Important as Loan Rates

Most businesses live and die on cash flow. Therefore it is important to look past just the interest rate and fees on a loan and consider actual repayments.

This is the major benefit for using home loans where there is sufficient equity in residential property as they can be taken out interest only and usually rolled over continually.

Banks offer “unsecured” business loans against some businesses.

But these are subject to sharp amortisation periods (anywhere from 1-7 year loan terms). So consider the actual repayments as well as the rate before progressing with a particular loan product.

Ensure You Have Sufficient Capital

You are unlikely to get over 50% of the purchase price of a business. The exception to this is for well-established franchises, for which borrowing can be as high as 70%.

As discussed earlier, you may be able to use equity in property to bridge the gap, but you need to consider from where the capital will be raised.

If you are purchasing a franchise, banks will hold approved franchise lists outlining the terms that the bank will extend against a particular business.

It is worth speaking to more than one bank (or engaging a mortgage adviser to do it for you) to make sure you are getting the best deal as banks will vary on terms extended against each franchise.

Learn About the Different Finance Options on Offer

For existing businesses there are many different types of financing that can assist with cash flow and growth strategies.

These include the following:

  • Asset financing
  • Debtor financing
  • Invoice factoring
  • Trade Finance
  • Credit Insurance
  • Overdrafts
  • Bank guarantees

BOTTOM LINE: Too many business owners learn about these products only when they are in difficulty. Smart management demands that the right debt strategy be an integral part of any business planning.

 

Commercial Property and Interest Rates

Commercial Property + Interest Rates

THE RBA RECENTLY confirmed a neutral bias, when it announced its latest decision to keep the official interest rate on hold.

Inflation appears to be relatively steady — and still well within the RBA’s stated band for comfort.

Furthermore, the feedback from the Residential market is that house prices in Sydney and Melbourne now appear to be levelling out.

The RBA was keen to see the Residential market slow somewhat. However, if that doesn’t remain the case, it may need to look to increase in interest rates. [Read more…]

Residential and Commercial Property Cycles

Investment-Cycles

WHERE ARE WE right now? And what actually determines the Cycles for each sector?

As it happens, most people believe every sector is quickly affected by interest rate movements. Whereas, that’s not strictly true.

And where interest rates do have an effect … the actual timing of that also varies. [Read more…]

Commercial Property Loans: Fixed Rate for How Long?

 

Commercial-Property-Loans2

 

IN PART 1, we gave you some advice if you are deciding whether or not to fix your loan.

Today, we continue where we left of with three guidelines to help you avoid a few more common pitfalls when it comes to fixing a loan. [Read more…]

CBD Offices Give Direction For Commercial Property

CBD-Office-Markets

THE PROPERTY COUNCIL of Australia recently released its latest survey — for the six months to January 2013.

It reports that the national Vacancy Rate for CBD offices has increased slightly to 10.4%. However, that hardly tells the whole story. [Read more…]

Commercial Property Loans: To Fix or Not to Fix?

Commercial-Property-Loans

INTEREST RATES REMAIN at historically low levels. And the competition for business between banks and non-bank lenders is fierce.

As a result, you can find some very attractive fixed rate options in the market at the moment.

However, if you are considering fixing an existing loan or taking out a new fixed loan, you must understand some fundamental rules that govern these loans.

The following guidelines will help you structure your fixed loans to provide the most benefits for both your residential and commercial investments. [Read more…]

Surge in Confidence Bodes Well for Commercial Property

Commercial-Property-Confidence

COMMERCIAL PROPERTY stands to benefit from the recent improved business trading figures — which have soared to a 2-year high. And these now fall into line with the NAB Survey’s confidence levels.

As such, many forecasters believe these latest figures (together with the growth in house prices over the past 12 months) now reflect the underlying strength of Australia’s post-mining economy.

Therefore, further interest rate reductions expected by the RBA are unlikely to occur any time soon — if at all. [Read more…]

Never Cross Collateralize Your Loan Arrangements

Cross-Collateralizing-2
Part 2: Proper Loan Structuring can give you Protection.

LAST TIME (in Part 1), you discovered why the banks should not be allowed to call the shots. And perhaps a couple more Case Studies will help to further explain that.

Let’s take a look at what happened “Kevin”

He was a very successful property investor who had an impressive portfolio, consisting of several residential and commercial properties.

Kevin was able to build this portfolio through a mixture of a good knowledge of the market, savvy negotiating skills, a high-income job with a resources company and, it has to be said, some luck in picking the trends.

Kevin’s problem was that he wanted to retire early — which is something someone of his net worth should easily be able to do. But he made one major mistake. [Read more…]