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PROPERTY DEVELOPMENT LOANS |
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The difference often between a property development being profitable or not can come down to the way the finance for the project has been structured.
The way the loan is structured will vary from one institution to another and can include some of the following:
- The interest rate must be competitive?
- When the interest is paid. In advance, in arrears, monthly etc?
- Is the loan is based on the Banks Bill Rate?
- Is the interest capitalized to the loan?
- Can principal reductions be made to the loan?
- What loan term is on offer. 1, 3 or 5 years?
- What establishment fees and ongoing charges are involved?
- What credit criterion is involved and how strict are they?
- Is the lender familiar with your type of development?
- What security will the lender want?
- What is the maximum LVR the lender will accept?
- Do you have to provide full documentation, marketing plans and an estimate of pre sales?
The list of what a lender wants to satisfy their credit department can be extensive, and the interest rate and costs associated with the loan are directly linked to the lenders attitude towards the type of project it is. Other factors such as how difficult the ownership/vendor structure of the project is and how many parties are involved may also impact on the lenders appetite for the deal.
Funders traditionally set the interest rate after careful consideration of the risks associated with the development. The main risks are:
- Developer risk:
Is the developer experienced? Does the developer have sufficient equity in the deal? Has the developer done this type of project before?
- Project risk:
Will the project make money? Is there demand for the end product? What is the current economic forecast?
- Completion risk:
Who is the builder and are they proficient in this type of project? Is it a fixed price building contract? Does the contract include penalty clauses? Is the site practical for the proposed development?
- Exit risk:
Are there pre-sales involved? Will the end product be popular? If commercial - Does the developer have a pre-commitment from suitable tenants?
Having a fundamental understanding of property development, funding, risk criterion, and sales and market preferences is critical in being able to offer developer clients a better service.
RFS have this fundamental knowledge and understanding of the property and development markets and are able to find you an appropriate loan to suit your next property development. Whether it is a residential, commercial or a specialist use such as a tourism or resort project, RFS have the ability to find the most suitable loan because of our access to a large number of Lenders.
For more information or to make an appointment to meet with an RFS consultant,
Call Now at 1300 88 42 99
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