One of the biggest challenges in private lending is the misunderstanding of ‘As Is’ versus ‘As If’ property valuations. Many investor losses occur when loans are extended based on an ‘As If Complete’ valuation, which estimates the property’s future value after development is completed.
Key Differences:
- ‘As Is’ Valuation: Reflects the current market value of a property.
- ‘As If Complete’ Valuation: Estimates the future value based on completed construction or improvements to be made to the property.
Example Scenario:
A block of land in Melbourne valued at $1 million ‘As Is’ could support a $600,000 loan with relatively low risk. Even if the market drops 20%, investor capital remains largely protected.
However, if a developer plans to build four townhouses on that land and a valuer estimates an ‘As If Complete’ valuation of $4 million, a lender might approve a $2 million loan. If the developer fails to complete the project, the actual property value may be far less than $4 million, putting investor capital at serious risk.
Market Risks & Due Diligence
Recent cases, such as the Public Hospitality Group in Sydney, have shown how ‘As If Complete’ valuations can fall short when it’s time to sell, leading to significant investor losses.
At ASL, we closely assess ‘as if complete’ valuations to ensure the proposed works are feasible. To protect all parties involved with the project, ASL holds the funds to complete the proposed works to achieve that ‘as if complete’ complete value.
Key questions to ask before investing:
✔ Does the valuer have adequate insurance?
✔ What is the lender’s valuation policy?
✔ Who controls the funds to complete the proposed works?
Final Thoughts
Higher returns often mean higher risk—especially when lending against future property values. If you’re unsure, research, ask questions, and understand the risks.
At ASL, we are always available to discuss how we price returns and manage investment risks.
Call Australian Securities on 1300 275 275 and talk to our investment team.
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