At First Point Group, we finance many property development transactions both residential and commercial. This article outlines a brief snapshot of key areas Lenders consider when approving residential property development proposals. 

 

Risk Analysis

Client/Borrower: Is this a big project for the client? The experience and track record of the borrowers in property development is a key determinant of lender support

 

Builder: Experience and track record of builder is vital to ensure project completes on time. Are you comfortable as to the track record of your builder and their substance, ability to fund project until the Lender pays progressive drawdowns. Have you viewed other sites completed by the builder and the quality of these projects and spoken to people who have used builder?

 

Construction: Your budget must be robust. Many clients operate in rounded numbers which can be an indication that project has not been costed in detail. I always find this a trap for first developments with cost overruns becoming greater than expected causing pressure to complete.

A fixed building contract is mandatory if you are not the builder. Ensure your costs include GST and that you are aware of any GST liabilities you have and any credits you may be allowed if developing to sell.  

 

Market:

 

Have you spoken to a valuer/trusted agent who can give you a realistic assessment of whether the market is ready for your development. What other developments are coming on stream in your area.  Pre sales may be required by the Lender.

 

What part of the real estate cycle are we in? Will the development be completed on time, within budget, to the quality stipulated and sell readily to clear the Lenders debt?

 

Security: From a Lenders perspective, the location, development and design are the key aspects. Does the development fit the area? Will the property sell within the required timeframe? 

 

Interest: Capitalisation of interest is allowed on many projects, but not all. If capping is requested, then the project must be strong across all risk components above. Is there capability of the client to cover interest if necessary?

 

Please contact Peter, Simon or David on 9882 2500 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it our office if you would like to learn more.