Obtaining development finance in today’s credit market is not for the uninitiated. Lending staff at a local branch may say yes initially due to their heavy sales targets but the reality is the major lenders all have a specific appetite that excludes most developers.
Important steps when seeking development finance
It pays to have your ducks in a row when you’re seeking approval for development funding. That means making sure you have plans and specs finalised, along with a detailed feasibility study completed. The lender needs to have confidence there’s an appropriate margin in the project before they can lend with confidence.
Lenders will want to complete a commercial valuation of the site that looks at it’s current value and the gross realisation value – the value of the completed project. The valuation will look at the building contract along with the specs when determining the projected end project values. The valuation and other reports the lender requires will be done at your cost so you need to make sure you budget for these upfront.
Quantity Surveyors Report
A Quantity Surveyors cost report will be commissioned by the lender to verify the costs of the development project.
Here it’s important that owner builders completing their own project understand , irrespective of the cost they charge themselves, the QS report will have build costs that are typical of what would be obtained on the market.
The Quantity Surveyors report will also highlight potential admissions or risks if something, such as the build contract not allowing for costs to demolish any existing structures on the development site.
Owning a property certainly makes obtaining development finance a streamlined process. In the absence of sizeable equity in the site you are going to need to have some funds to contribute to the project. It’s likely that a lender could require you to contribute up to 35% of the land value when purchasing a development site and then you will need to account for costs like stamp duty as well.
If you understand the process required to assess a residential development project there’s definitely lenders who are interested in funding all sizes of property developments. At this time at least, major banks are unlikely to be of assistance and a professional helping your hand through the application process makes a big difference to your success and peace of mind.