Chandler backs active lending to boost quality

Just suppose you want to invest in the residential property market but you don’t want to be a landlord, Airbnb host or, even worse, unwitting enabler for dodgy developers. 

You’re looking to ride the residential property wave which, given the critical shortage of housing afflicting most of Australia, is as close to a sure bet as you’ll get, long-term anyway.

Many if not most investment funds and banks will have at least one finger in the property development pie, but you might have a social conscience tugging at your sleeve. 

Does it prick your conscience that some of your super funds could be financing coal mines, land clearing and fracking?

Do you care if some of your money finds its way into cheap and cheerless apartment blocks whose developers and builders will phoenix into another entity at the first sign of defects, leaving apartment owners in the lurch?

More than that, what if your investment choices actually helped in the ongoing campaign to drive dodgy developers out of business?

“Financiers have taken their eye off the ball so development drawdowns are frequently not compliant with property standards,” NSW Building Commissioner David Chandler OAM told an industry seminar on “active lending” last month.

“Active lending is critical to head off problems,” he added

The concept of active lending involves lenders taking direct interest in the developments they finance, including, they say, site inspections and engagement with developers to ensure the NSW building commission’s compliance requirements are met.  

“We need people to understand the way in, the stay in and the way out so people can invest with greater confidence,” Mr Chandler said at an event for the construction industry hosted by investment platform AltX,

According to its literature, AltX allows wholesale investors to access “curated and vetted” first mortgage investment opportunities. One example of a successful project is the redevelopment of a popular cafe spot in Hall St, Bondi which earned investors an 8 per cent return.

All of which fits snugly with Mr Chandler’s vision of supporting the better developers so as to render the bad boys and girls of the industry redundant. And it makes financial sense for the apartment purchasers too.

“The rules in NSW have changed for the good and costs are normalising,” Mr. Chandler reportedly said. “The cost of non-compliance and rework that was once transferred to consumers is now retracting.” 

This column can’t speak to the essential quality of AltX as an investment opportunity, although to be fair it has been in business for 12 years and has apparently funded more than $3.1 billion in deals across 1440 loans.

More importantly to us, at least, is its philosophy not to throw money at projects just because they are likely to be profitable, then leave the developers and builders to get on with them.

AltX spokespersons say its project management team, including an architect, surveyors, engineers and planners, visits sites to ensure projects are on budget and schedule and now, presumably, compliant with Mr Chandler’s iCIRT star rating system.

Are there any other lenders out there providing that level of continuing diligence? It would be encouraging to think so as that can only accelerate the demise of dodgy developers.

If they aren’t producing the required quality of apartments, then that’s one source of finance that will soon dry up.

Perhaps the banks and financial institutions that lend money to developers purely on the basis that they have repaid previous loans – regardless of what happened to the purchasers of the apartments after they moved in – could learn something from this approach.

Meanwhile the more ethically minded investor could look at how the property elements of their portfolios are managed and ask if the lenders are as diligent in protecting the end user as they are in defending their profits.

An edited version of this column first appeared in the Australian Financial Review.