Understanding development finance
Development finance is funding for the purpose of comprehensive renovations or major new building projects. Examples include luxury homes, housing estates, or office blocks to be converted into apartments. Funding can be for residential, commercial and mixed use properties. Development finance is not used for smaller scale developments like the ones you see on TV where developers improve a house and “flip” it or sell it for a profit.
Type and Duration
Development finance typically operates as an interest-only, draw-down facility and the term of the loan would typically be 6 to 18 months, depending on the size and nature of the project. Usually the interest on a development loan is capitalised within the development period, with the entire loan inclusive of interest charged being repaid upon the sale of the property. Usually the interest can be rolled up into the loan, so there are no monthly payments.
There aren’t usually set rates for property development finance, so it’s a good idea to talk to a commercial broker who will find the best rate for your proposition. Lenders will assess each application and will set a rate according to the strength of the development proposition and the track record of the borrower.
Before seeking finance, it is important to finalise all planning consents and have all relevant documentation available. That’s because development funding without full planning consent can be difficult to secure, unless the borrower is highly experienced and has already completed a number of successful development projects.
Here at FinanceCorp, we have our own Commercial Team who are specialists in all aspects of borrowing. Feel free to give us a call on 08 9417 5550 for a friendly chat before you get started.