13 Mar 2014
Words Tim Admin

Confidence improves

Prior to the federal election there was a fair bit of buzz around that if a change of government was to happen then we might start to see some improvements in consumer confidence. Recent reports from the Reserve Bank and our general observations of the market would suggest that confidence is certainly improving and that's no bad thing. In particular we note that the Reserve Bank seems to have ceased its cycle of cash rate cuts with some analysts even suggesting that hte rate may rise within the next 18 months. Given that the cash rate is used primarily as an inflation management too and that improving confidence will drive consumer spending which in turn drives inflation you can see how things seem to be playing out. Put simply if the Reserve Bank start lifting the cash rate marginally you can be sure that the consumer confidence and spending are on the rise. This feeling of improving confidence seems to be also manifesting itself within the banks. Traditionally management rights in Queensland have been an aggressive lending target for a range of lenders while rights in other states have not necessarily enjoyed the same level of support. Over the past few months there has been a discernable positive shift in the attitudes of some lenders to the point where we have even been able to assist a client with finance for a management rights in Tasmania. The truly encouraging aspect of finance for rights at the moment is the approach some banks are taking in terms of really trying to find ways to do the deal. The post GFC environment of sticking rigidly to bank credit policy is definitely improving with both relationship managers and their credit department looking to work with us to get deals done. Obviously transactions that clearly demonstrate capacity to service debt and borrowers with appropriate skill sets are receiving the strongest support and rightly so. While this shift in attitude from lenders is evident in the management rights space it is even more apparent when we are putting a motel or caravan park deal together. Again, provided the fundamental credit benchmarks are met we are seeing lenders go well outside policy guidelines to assist our clients. In one case we are looking at lending outside guidelines in excess of half a million dollars. In another case we have negotiated lending on an unsecured basis at a similar level. In both cases we are dealing with highly experienced accommodation industry professionals purchasing strongly performing assets. In another sign of support from the banking sector we now have one major lender who has agreed not to conduct valuations for smaller leasehold transactions. Provided the purchases has an industry expert accountant conduct due diligence and provide us with a report we have been able to use that document together with comparative market evidence to support purchase prices without the need for a valuation. The saving to purchasers can be several thousand dollars in valuation fees. With typical return on investment for leases showing four times the cost of debt you can see that lending outside guidelines on the basis of an accelerated repayment schedule makes perfect sense. The lenders are starting to agree and that's very encouraging both for us as financiers and also for the industry more broadly.