What are property development loans?
Property development loans are funds that you will need as a property developer to develop a vacant block of land. The loan can be for constructing more than one property like apartment complexes and townhouses in one land title or to develop a piece of land, sub-divide it into smaller blocks and sell them for profit.
If you are looking for property development loans, then you might already have a piece of land, or you are looking to acquire a piece of land. You can be an experienced developer or a first timer in this field. It is always good to plan ahead to succeed in this game. Planning the feasibility of a project ahead with a futuristic view of the market is the key to success.
Our work is to guide you through the process, give you clarity and make the process smooth for you.
What are the types of property development loans?
Property development loans are specialised in nature and are different from residential loans you might be familiar with. You can either apply for a residential or a commercial property development loan depending on the nature of your project.
Residential property development loan.
A residential property development loan is suitable if you are developing less than four units on one single land title.
Commercial property development loan.
If you are developing more than five units or if you are developing a piece of land, sub-dividing and selling it as blocks, you will need to apply for the commercial development loan.
How do property development loans work?
Property development projects can be divided into three main stages:
This stage is the early stage of the development when you are acquiring the land to develop. This stage involves lots of planning processes.
This stage mainly involves all the approval and engineering works. This will typically include council approvals, Development Approval (DA), and other paperwork.
This is the final stage of the project when the construction works are done. It will include buying machinery for site clean-up, getting the earthwork done to getting electrical and an NBN connection.
Some of the lenders give loans for only one of the stages and some of the lenders can offer you funds to cover you from the beginning to the end of the project. Funds are released at the end of each stage to make payments to the builder and others involved in the construction process.
Whom should I approach for my property development loans?
There are different types of lenders and lending structures with varying costs. Mainly there are two channels of finances:
The traditional channel of finance that provides property development loans are banks. They provide loans based on:
- Net profit of the project.
- Minimum profit of the project.
- Experience of the people involved in the project.
Private lenders are non-bank lenders. Lending by private lenders is done based on:
- Gross Realisation Value (GRV) instead of traditional capacity or net position of the project. (GRV is the on-completion value of a property development project.)
Private lenders are non-traditional lenders, but they are experienced in the property development field. They are tuned to the market and know the market inside out.
How much can I borrow?
There are different criteria based on which lenders give loans, like the feasibility of the project and the credibility of an experienced person involved in the project. The criteria will also differ from lender to lender.
The maximum amount of the loan for property development depends on the size of your project, its feasibility, and the profitability of the project. It also depends on the lender you choose to go with. It might typically vary from 65% to 75%, again depending on the lender and the project.
What documents do I need to provide while applying for a property development loan?
Documents required to provide while applying for a property development loan in Melbourne might also vary from lender to lender. If you want to go with traditional lenders like banks, you will briefly need,
- Detailed construction plans of the project.
- Feasibility study of the project.
- Estimated cost of the project.
- Development approvals.
- Customers’ statement of financial position.
- Credential of builders involved in the project.
- Experience of involvement in similar projects in the past.
- Completion timeline of the project.
- Having a good credit history helps a lot in proving the creditworthiness of the borrowers.
What is the interest rate for property development loans?
The cost of the loan will mostly depend on the projected costs of your project as well as your finances. There is no fixed or set interest rate for property development loan, but it will depend a lot on your project and the lenders you choose to go with.
Is it a good time to go for property development investment?
Market research is an integral part of any investment. It is always suggested to do a detailed market research on the prospects and feasibility of a project to decide whether it is the right time to jump on in the business or not. Your research for property development investment should analyse different criteria like geographical location, key market trend, the weather of the area, population density, demographic trends of the area, employment rate, target buyers and future government zonal plans in the area to name a few.
The research will give you a clear picture of what type of development you want to go for and its feasibility.
So, if you are a first-time property developer or a leader in the market and are looking for a financial consultant that can obtain more than just a great finance package and give you more clarity through the process, then call Aman Singh (Director) at 0412175700 from Credit Hub to discuss your requirements. You can also contact to our team at 1300 782 944 or send us a note at Info@credithub.com.au.