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Property Development Finance includes the construction of new buildings, refurbishing existing buildings, as well as land subdivisions and is considered to be the most complex area in property finance.
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If you are planning a property development project then you are best advised to seek the services of an experienced commercial finance broker as opposed to a standard residential mortgage broker. A good commercial finance broker will have experience in structuring construction loans and can facilitate property development finance for land subdivisions, residential, commercial, office, industrial, retail and hospitality orientated property developments throughout Australia. They will be able to give you advice, information and guide you through the entire application process. Perhaps more importantly they will have a far greater knowledge, range of appropriate lenders and industry contacts than an individual developer would have. Using their knowledge and contacts they will be able to analyse your specific requirement and in turn structure a suitable funding package which would be the best fit for your project.
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Property Development Finance can be structured in many ways, tailored to the specific needs of the project. Typical development funding structures fall into two main categories; Total Development?Cost (TDC) based facilities and Gross Realisation Value (GRV) based facilities.
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Total Development Cost (TDC) finance is based as a percentage of costs associated with the development such as land purchase, construction costs, professional fees, marketing costs, stamp duty, interest and so on. Generally the maximum loan amount is 80% of Total Development Costs (TDC). This type of loan is normally offered by institutional lenders such as banks and super funds and is also the cheapest development finance option. The downside is that it the most difficult to obtain as the lenders require full financials and presales.
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Gross Realisation Value (GRV) finance is based on a percentage of the projects end value upon completion with a maximum loan amount up to 70% of Gross Realisable Value (GRV). This type of loan is generally offered by private non-bank lenders and as a result can be much more flexible as these style of lenders have a more relaxed requirement for presales and financial information.
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Additional Property development finance facilities:
Mezzanine facilities which bridges the gap between Senior Debt and the developers? equity
Equity participation where the developer has insufficient equity to successfully finance the project
Land Bank finance for land to be held for construction at a future stage
Take-out facilities of residual stock to repay construction loans, release equity or to allow for an extended selling time
Joint Ventures with experienced property developers
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The actual application process for property development finance can be logistically demanding, and is once again, best left in the hands of your commercial finance broker, who becomes your intermediary and point of contact with the lenders, and will keep you fully informed of events as they transpire. Your finance broker will also be on hand to help you confront and resolve any issues that may occur during the application process.
Applying and being accepted for property development finance is arguably one of the most stressful and time consuming forms of finance to tackle and it is definitely worth investing in the services of a professional to streamline the entire process.
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Bill Salouris is the Director of Sales at who is Global capital commercial facilitator specialising in property finance, Commercial Loans, & property development finance.
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Source: http://www.forexfinanceblog.com/property-development-finance-australia-2/
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