Finance Challenges for Commercial Property Buyers
Commercial property investors have a lot on their mind at the moment. But you would think those who are fortunate enough to be in the position to buy right now would be sitting pretty.
But that’s not necessarily the case. Because securing finance has become particularly tough.
Since the coronavirus pandemic and market downfalls, the banks have been swamped in just about every area.
Unfortunately the strain isn’t just limited to one bank, but is being felt across the industry. For example, ANZ is dealing with huge rise in home loan applications, mostly for refinancing, since COVID-19. This has seen the bank’s home loan application processing time double in the last two months. Westpac has also said it is struggling to deal with a growing backlog of home loan applications.
As a result, we’ve seen the problems flow to commercial property buyers. The entire process to secure a loan is more complex and takes much longer, and finance approvals have become harder to obtain.
Processing an application used to take the banks about 30 days, but investors are now looking at a wait of 90 days or more.
Valuations and assessments in particular are slowing things down.
Why has this happened?
There are a number of factors which have turned what was once a relatively straight forward process into something slow and frustrating.
Firstly, the application process has now turned completely digital and lender policies have changed.
Banks now require more documentation to verify your position and situation, and will heavily scrutinise your living expenses, income, employment and assets. So as you can imagine, with more documentation to assess and a more questions from your lenders, things quickly drag out.
Borrowing power has now also been reduced – with such low interest rates at the moment, lenders fear people will borrow too much now and then be unable to make repayments in the future when interest rates increase again. Unfortunately, this also heavily impacts the plans of commercial property buyers.
What you need to do
Preparing yourself as early as possible will minimise the challenges you face when securing finances.
The most important actions for you to take are to get organised and allow more time.
Commence the finance process as soon as possible and allow for these significant delays. Depending on your situation, it may even be worth considering applying for pre-approval.
Make sure you’re prepared with all required documentation, including finance documentation, monthly living expenses, business financials, contracts, statements of debt and more. Respond to any questions promptly and accurately. The quicker you can provide the banks with all the information they need, the quicker your application can be processed and approved.
Keep a record of any significant dates in the application process and timing. When you know how long each step of your application will take, you’ll be able to follow up when delays occur.
You also need to structure your property contracts, deals and arrangements based on the current circumstances.
Where you can, aim to build more flexibility into your contracts and deals to make room for delays – if you expect the delays, you’ll manage them better.
Finally, you need to manage the expectations of all involved in your process and acknowledge the growing delays from banks and lenders.
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Managing Director, Broadway Property
Director, Broadway Property