INL May 15, 2020 Digital Edition

04
MAY 15, 2020
Homelink
Non-Bank development finance in post Covid-19 environment
Parash Sarma
The Covid-19 outbreak will
continue to cause significant
adverse economic
effects that will almost inevitably
impair borrowers’ abilities to
obtain and service mortgages and
other financing.
And unlike the mainstream
banks, which can access new Zealand
Reserve Bank liquidity and
funding support, non-bank lenders
have limited tools to combat
economic shocks.
Billion dollar initiatives to
encourage lenders to provide cash
flow support to small business
have emerged, but they have not
Winter Energy Payment to benefit 850,000
Carmel Sepuloni
More than one million
New Zealanders will
have more to spend on
warmer homes today as
the Government’s doubling of the
Winter Energy Payment kicks in to
keep people well and stimulate the
economy.
brought salvation for all sectors of
the market.
In particular, the Non-Bank sector
will be feeling pain as wholesale
funders and investors reduce their
risk appetites and, in some instances,
pull funding altogether.
A different model
The model for ASAP Finance
is different- it is a family-owned
business and private equity is
supported by fixed-term funding
lines from mainstream banks.
This means, we do not rely on
wholesale funders or investors
which provides us with cashflow
certainty. However, there are
other sector specific risks which all
developers should consider when
choosing their funding partner.
On an ongoing basis, development
finance companies have an
added layer of complexity when it
comes to managing cashflow.
Development funding requires
lenders to make progress payments
to the developer/or contractor
generally on a monthly basis for
completed works.
During the Global Financial
Crisis (GFC), many developers were
caught out when their financier
failed to make those progress payments
ultimately spelling disaster
for their project.
This is because development
finance companies rely on recycled
cashflow from mortgage repayments
to fund progress payments.
Mortgage repayments issue
Mortgage repayments can come
from selling down completed stock
once the project is complete, or by
way of refinance once the construction
risk has eliminated.
During times of crisis, low
The Winter Energy Payment for
2020 runs for 22 weeks from May
1 to October 1, 2020 and doubles
to $1400 for couples and $900 for
single people this year.
About 850,000 people will benefit
from it with more than one million
kept warmer once children and other
household members of recipients
are included.
The Winter Energy Payment
started as part of the Government’s
December 2017 Families Package
designed to help older New Zealanders
and many of our poorest
families heat their homes over
winter.
When the impact of Covid-19 first
hit, the Government set out a $12.1
billion dollar support package for
New Zealanders and business. It
was within this package that we
increased benefits by $25 and doubled
the Winter Energy Payment.
A core part of the Government’s
response to Covid-19 is to ensure
families stay healthy and focused
on their wellbeing which is good
transaction volumes decrease the
frequency of repayments; similarly
the refinance market experiences a
decline in liquidity as other lenders
become less willing to take on new
debt.
Simple strategies such as
switching from loan origination
to servicing existing clients can
provide immediate cashflow relief
during times of crises and could be
considered best practice for even
the most well capitalised development
lenders. The Catch-22 being
that it decreases overall liquidity
in the economy and can ultimately
worsen the impact of a crises.
At ASAP Finance, we endured
the Global Financial Crises and
are aware of the perils that can
result from being unprepared for
external shocks.
We emerged strongly from
the GFC and the lessons learned
continue to be implemented in the
business today including always
operating with sufficient margin of
safety.
Over the past two weeks, we
have visited over 80 construction
sites with more sites to be
visited over the coming weeks. Our
commitment to our clients during
these time remains unchanged; our
success is inextricably linked to the
success our clients.
Parash Sharma is Client Services
Director at ASAP Property Finance
Specialists based in Auckland.
Phone 021-864730. Email:
parash@asapfinance.co.nz
for them and good for our health
service.
Those on lower incomes
generally spend any extra money
on household items that keep their
families well, and so doubling the
Winter Energy Payment will act
as an immediate stimulus in local
economies.
The increase to main benefits, in
addition to the benefit rate being
indexed to the net average wage
rather than the Consumer Price
Index, is the largest across-theboard
increase in several decades
and is estimated to help support
350,000 low-income individuals and
families.
The efforts of our team of five
million helped to get us in a good
position to tackle the virus and we
each continue to have a role to play
as we begin to reboot our economy
for the good of all New Zealanders.
The Government is here to
support those who need it.
Carmel Sepuloni is Minister for
Social Development.
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