A property development loan is usually for a short-term period. It’s usually between 12-36 months.
The lenders supervise on the project with (usually) a QS report on the project progress. The development loan is repaid to the lender at the end of the project. Either by selling out or refinancing with an investment facility.
The developer finances the land purchase price. Concurrently, the lender supplies either all or part of the remaining construction costs. It’s also worth noting that the money is usually released in stages, depending on the progress of the project. Afterwards, the lender makes staged payments according to the pre-agreed intervals. In this way, all the costs associated with the project per se are covered.
The lenders calculate a development finance property facility as a percentage of the gross development value of the finished project (the GDV) as well as, as a share of the costs, the lower between them.
Usually, a monitoring surveyor should indicate that the scheduled works proceed according to a plan. There are also certain standards worth considering.
When it comes to the standard terms for finance property development, they can vary. That’s basically because each scenario has its own specifications. Plus, different development finance lenders provide different offers. However, the duration of the loan might be between six and twenty-four months.
Plus, property development finance is interest-only, as the interest is accumulated into the loan.
That is to say, during the term of the loan, you don’t have to worry about making scheduled repayments. When it comes to exiting the loan, there is the option of selling the property.
Many developers worry about the interest of this type of financing. The truth is that so many factors affect this. For one thing, certain development finance lenders are more flexible in this respect. Others might be more rigid – it varies quite a lot. Also, the financial contribution of the developer to the project matters. The same could be said about his/her former experience in the world of development.
It’s as simple as this: the more an investor can contribute to the project, and the more experience one has in the domain, the more convenient the interest rate will be. Collaborating with professionals who have excellent credentials is a sensible strategy as well.