Plenty of interest in development and investment finance

Investment loans now make up 53.86% of its loan book and construction 12.92%.

The specialist financier offering six types of loans, including vacant land, subdivided land lots, pre-development, construction, residual and investment stock, says a few themes are emerging across its development, investment and advisory channels:

Developers looking through the existing cycle

There has been a marked increase in enquiries for land subdivision and larger scale residential construction, even though the housing market remains soft. Surplus stock is gradually being absorbed, and many developers are positioning projects for delivery in 2027 and beyond.

Bank funding constraints reshaping the market

Traditional lenders continue to require high pre sale coverage, which is proving difficult in the existing environment. This is pushing developers toward non bank lenders who can offer more flexibility around timing, sales risk and leverage.

Interest rates and construction costs influencing timing

While rate volatility remains, developers generally expect rates to stay low relative to long term averages, supporting demand as confidence returns. Construction cost escalation has eased to some of the lowest levels in years, but labour shortages mean even a modest uplift in activity could quickly push costs higher. Global geopolitical instability is also feeding into local input cost uncertainty.

Private credit liquidity remains strong, but scale matters

There’s been an influx of smaller non bank entrants, increasing competition in the short term. However, many have limited balance sheet depth, meaning their capacity can be constrained after only a handful of loans. Borrowers are increasingly prioritising the ability to fund a project through its full lifecycle.

Regional activity is broadening

Central Otago and Canterbury continue to show strong enquiry, supported by population growth and infrastructure investment. Waikato and the Bay of Plenty are also gaining momentum. Auckland, however, remains the most consistent source of long term activity due to its scale and depth of demand.

Non bank lenders playing a critical role

By accommodating higher perceived risk, particularly around pre sales and pre leasing, and offering higher loan-to-value (LVR) and loan-to-cost (LTC) ratios, non bank lenders are enabling viable projects to proceed at a time when traditional funding channels are tightening. This is helping sustain the pipeline of new housing and commercial supply.

In four recent transactions Pallas lent $6,750,000 on a 70% LVR investment to a Christchurch borrower to buy vacant commercial property ahead of repurposing and lease. Bank funding is expected to refinance the loan once the new tenancy starts.

In another Christchurch deal, $12.177 million was lent on a 65% LVR, first mortgage over subdivided land lots, facilitating refinance and equity release, with repayment expected through progressive sales.

More than $2.175 million was lent to a Queenstown borrower at a 75% LVR, for a pre development first and second mortgage supporting acquisition ahead of consents for a 10 unit development.

In Auckland a borrower took out $8.77 million at a 65% LVR on construction first mortgage funding for a high end residential build without pre sales, with a pathway to residual stock finance at completion.