November 5th – Arash Jalali, Co-Founder and CEO, Revona
Democrats won both chambers of Congress on Tuesday, and Treasury yields fell on Wednesday as investors reassessed the outlook for fiscal policy and inflation. The two-year yield fell to a two-month low of 4.546%, while the ten-year declined to 4.888%. The thirty-year sits at 5.282 per cent, and that is closer to what long-dated project debt is priced against. My view is that heavy government borrowing could still limit further declines in longer-term yields, so I would use any improvement in financing terms to reassess projects that already have demand.
If borrowing today keeps a development on schedule, I’d put a value on the buyer payments it brings forward and compare that with the interest a developer might save by waiting. On a residential development with contracted sales, I’d structure the financing so funds are drawn as construction progresses and principal repayments align with buyer collections, leaving enough liquidity to absorb a delay in handover.
Take a simple case. A $50 million facility drawn in full, where waiting improved pricing by 50 basis points, would save $375,000 over eighteen months. Six months of deferred collections on a $40 million scheme, with 60 per cent of the price still to be paid, at a 15 per cent project return, is about $1.8 million. The wait has to buy more than $1.4 million of certainty to be worth taking. In my experience it rarely does. None of which is an argument against borrowing. Debt is how a developer builds the tower before the buyers exist.
A cheaper barrel does not close the cash gap
Brent settled at $94.62 a barrel on Wednesday, down 8.7%, as investors increased their bets that the election outcome could accelerate efforts to end the war with Iran. If that decline feeds through to freight and input costs, importers and distributors could retain more cash from each sale. The benefit will depend on supplier pricing, existing inventory and how quickly those savings reach the business.
Lower oil helps at the margin. It does not restore the cost base. At $94.62 Brent is still up more than 60 per cent on a year ago, and freight and inventory are still paid for thirty, sixty or ninety days before a customer pays. A growing order book ties up more cash at exactly the moment it becomes an opportunity.
For a business carrying that gap, a revolving credit line can turn it into capacity. I’d reassess working-capital needs at these levels. Lower input costs and financing that follows the trading cycle can work together to make growth more affordable.
AI infrastructure faces the same timing problem
Microsoft said delays in third-party data centre deliveries held its quarterly capital spending below expectations. For the businesses building that capacity, a delay can push revenue back while interest and construction costs continue. Property developers face a familiar version of that problem when handovers move and buyer payments arrive later than planned.
For a developer, the right loan does two things at once. It keeps handovers on schedule and leaves enough equity to start the next project. Debt does not make a weak scheme sound. It lets a sound one start before its own cash arrives.
This commentary is general information, not investment advice, and does not take account of any individual or company’s circumstances.
