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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Commercial lending has been largely immune from the changes in the market to date. However, more recently, APRA has announced that it will be placing greater scrutiny on commercial property loans, with the various banks.
Past Experience
Gauging from the reaction of the banks to last year's crackdown on residential property investment loans, we could expect the following responses:
- Increased income capacity required to service loans
- Higher lending margins on commercial investment property
- Crackdown on "low doc" loans
- Possible reduction in loan to value ratios
- Higher scrutiny on tenants and leases
- Tighter reporting requirements
Lenders Becoming More Cautious
Some of these changes have already started to occur as banks are becoming ever more discriminating with the investor profiles they are willing to take on as new to bank clients.
However, this needn't discourage genuine investors looking to build a commercial property portfolio.
While it may be becoming harder for investors to secure a good deal from their bank, the commercial property the sector contains many alternatives that are just as attractive.
The Good News
Some of the other benefits that non-bank funders can provide commercial investors include:
- Longer loan terms
- Less requirements for annual reporting
- More flexible lending terms
Bottom Line: As ever, the major banks will provide the cheapest deals for the clients that fit their preferred borrower profile. And yet, for investors, it may be a time to look outside the majors and at least get an alternative quote.
