A Guide To Property Development Financing
Property development finance is funding structured specifically around the requirements of a development project. Rather than assessing the borrower in the same way as a standard home loan, development finance considers the property, proposed development, costs, timeline, security and exit strategy.
The right funding structure can affect how much equity a developer needs to contribute, how funds are released during construction and whether the facility aligns with the project timeline. For developers in South East Queensland and Northern New South Wales, specialist non-bank lending can provide an alternative to traditional bank finance.
Assured Management is a boutique, non-bank direct lender providing first-mortgage construction and development finance across SE QLD and Northern NSW since 1998, giving developers direct access to the loans approval team. Call (07) 5578 6177.
Key Takeaways
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Property development finance is structured around the individual development, including its security, costs, feasibility, timeline and exit strategy.
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Development funding can be used for projects including land subdivisions, housing estates, townhouse developments, unit blocks and selected commercial or industrial developments.
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Construction funding is generally released through progress draws as work is completed, rather than as one lump sum upfront.
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Lenders may assess funding against the property's current value, total development costs and the Gross Realisable Value (GRV) of the completed project.
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Presales are not always required, although they can form part of the lender's assessment of the project and exit strategy.
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The amount of equity required depends on the project, funding structure, property values, costs and lender's assessment.
What is property development financing?
Property development finance is funding arranged specifically for a property development project. Depending on the facility, it can help fund land acquisition, construction, subdivision and other development costs.
The way a facility is structured depends on factors including the security, proposed development, feasibility, developer and builder capability, and how the loan will ultimately be repaid.
Development finance options: A Quick Guide
| Finance option | Best for | Key feature | Consideration |
|---|---|---|---|
| Development finance | Projects involving acquisition and development costs | Can be structured around the overall development | Requires a viable project, suitable security and a clear funding and exit strategy |
| Construction finance | Projects ready to move into construction | Funds are generally released through progress draws | Construction programme, costs and builder capability need to be assessed |
| Land subdivision finance | Subdivision projects | Funding can be structured around staged development | Approvals, civil works, end values and the subdivision programme are important |
| Bridging finance for development timing | Short-term funding gaps connected to a development or property transaction | Provides temporary funding while another funding arrangement is put in place | The exit must be clear and achievable within the facility term |
The type of finance required depends on the stage and structure of the project.
Development finance
Development finance can be structured around the different stages and costs of an individual project. Depending on the facility, this may include acquisition, pre-construction costs, construction and other development expenditure.
For an overview of Assured Management's current development lending, see Property Development Loans.
Construction finance
Construction finance is used when a project is ready to move into building works. Funds are generally released progressively through progress draws as construction stages are completed and verified, aligning the funding with the build programme.
See Assured Management's First Mortgage Construction Loan guide for more information on senior debt construction finance.
Land subdivision finance
Land subdivision finance is designed for projects where a site is being divided into multiple lots. The lender will need to understand the approvals, civil works, development costs, projected values and timing of each stage.
Assured Management provides more information about Land Subdivision Development Loans & Finance.
Bridging finance
Bridging finance can be relevant where a developer has a temporary funding gap between transactions or funding arrangements. It differs from a construction facility and should be considered only when there is a defined, achievable exit strategy.
How development finance is assessed
Development finance is assessed on the project as a whole rather than simply on the borrower's income. A lender will typically consider five key areas:
- Security: property details, location, current value, proposed end value.
- Project documents: plans/specs, approvals/permits, build contract or QS inputs.
- Feasibility: total development cost, contingencies, timeline, margins.
- Capability: developer and builder experience, delivery track record.
- Exit strategy: sales programme, refinance plan, staged settlement/release.
These factors help the lender determine whether the proposed facility is appropriate for the project and whether the development can be completed and the loan repaid within the proposed timeframe.
What documents are needed for development finance?
The documents required will depend on the project, but a lender will generally need information about both the development and the borrower.
Project documents may include:
- Site and property details
- Plans and specifications
- Development approvals and permits
- Building or construction contracts
- Quantity surveyor information
- Development feasibility
- Project costs and construction programme
- Proposed sales programme or exit strategy
Borrower documents may include:
- Identification and entity details
- Financial information
- Details of existing assets and liabilities
- Evidence of available equity
- Relevant development and construction experience
- Information about previous projects and their outcomes
The purpose of this information is to assess the security, project feasibility, borrower capability and proposed exit rather than relying on one factor in isolation.
What happens after you apply?
The application process generally involves:
- Initial project discussion
- Document submission
- Project assessment
- Facility structure
- Approval and documentation
- Settlement and funding
The timeframe can vary depending on the project, documentation, valuation requirements and lender. Providing complete and accurate information at the outset can help the assessment proceed efficiently.
For more information about preparing an application, see Assured Management's guide to improving your chances of finance approval.
Understanding GRV-based development finance
Some development finance facilities assess proposed funding against the Gross Realisable Value (GRV) of the completed project as well as the current value of the property. This can produce a different equity requirement from a funding model based primarily on a percentage of total development costs.
Assured Management's worked example uses the following figures to illustrate the difference in funding outcomes:
| Traditional Hard Cost Method | Assured Management Facility | |
|---|---|---|
| Funding basis | 80% of TDC | 65% of GRV |
| As Is Land Value | $2,000,000 | $2,000,000 |
| GRV | $10,000,000 | $10,000,000 |
| Construction Cost | $5,000,000 | $5,000,000 |
| Interest and Fees | $400,000 | $530,000 |
| Total Costs | $5,400,000 | $5,530,000 |
| Loan Available at Commencement | $1,100,000 | $970,000 |
| Total Loan Available | $4,000,000 | $6,500,000 |
The example illustrates why the funding basis matters. A facility assessed against GRV can produce a different funding outcome than one based on a percentage of total development costs, although the right structure depends on the individual project.
What does development finance cost?
Assured Management's current fees and interest rate include a 2% GST-free application fee, interest of 10.75% per annum and a $525 release or consent fee for each release. Borrowers also pay valuation fees, quantity surveyor fees and other outlays.
Assured Management does not charge legal fees for preparing mortgage documents, drawdown fees, management fees, line fees, variation draw fees or monthly monitoring fees.
For developers considering a project, the Developers & Finance information provides further detail on its current lending approach and requirements.
Finance with Assured Management
Assured Management (AML) is a flexible, non-bank lender with the ability and expertise to work directly with property developers to complete projects in a timely and profitable manner. We provide tailored construction finance solutions for:
- Housing estate developments
- Unit blocks
- Townhouse development
- Land subdivisions
- Commercial and industrial premises.
- Investment properties
To apply for a construction loan, please contact AML and speak directly to the loans approval team by phoning (07) 5578 6177. You can also send through your enquiry online.
Frequently asked questions
What is property development finance?
Property development finance is a loan facility designed to fund a development project rather than a standard residential property purchase. Depending on the project, it can help fund land acquisition, construction, subdivision and other approved development costs.
How is property development finance different from a standard home loan?
A home loan is generally structured around purchasing or refinancing a completed residential property. Development finance needs to account for the changing value, costs, stages and risks involved in completing a development, as well as how the loan will be repaid.
What documents do I need to apply for property development finance?
Expect to provide information that allows the lender to understand both the project and your ability to deliver it. This can include plans and approvals, construction and feasibility information, financial details, evidence of equity, relevant experience and your proposed exit.
Do I need presales to get development finance?
Not always. Some lenders will consider development funding without a set presales requirement, particularly where the overall project, security, feasibility and exit strategy support the application.
Can first-time developers get development finance?
Yes, it can be possible, although experience is one factor lenders consider when assessing a development application. A first-time developer may need to demonstrate strong project support, an experienced builder or professional team, suitable equity and a viable development structure.
How long does a property development finance approval take?
There is no standard timeframe that applies to every development application. More straightforward applications with complete documentation may progress differently from projects requiring additional valuations, due diligence, approvals or changes to the proposed facility.