To pre-sell or not to pre-sell

This month we focus on the topic of property development pre-sales.

One of the biggest issues for developers is whether to pre-sell stock in their development but in recent times this decision is being more and more driven by the lenders requirements rather than the developer’s choice.
Whilst the level of debt coverage in the form of fully qualifying pre-sales (10% deposit being cash or bank guarantee, no deposit bonds or overseas sales) may vary from bank to bank the reality is that at least 50% debt coverage and in some instances 100% debt coverage net of GST and agents’ commissions is becoming a condition precedent for approval.

There are a number of factors a developer needs to consider when deciding to pre-sell or not which include:
 Potential higher sale figure on completion of the development especially in a rising market
 Triggering GST payments
 Taxation issues / deferring profits into following financial years
 Wealth creation for developers wanting to hold stock long term

In most cases Banks require pre-sales however Finance Advocates Australia has recently structured several loan packages with the Banks where no pre-sales have been required. The alternative option to a Bank are second tier lenders who tend to be a little more flexible on their loan structures and pre-sales however this may come at a little more cost than a major bank.

Feel free to give Renato Sturma on 1300 780 196 a call to discuss your next project especially if require advice in regards to pre-sales.

Development Finance – Land Bank Case Study

Finance Advocates recently settled a “land bank” site for a developer who was frustrated with the responses he was receiving from a number of banks and other lenders.

The astute developer purchased a development site in the bayside suburb of Chelsea Victoria on a long term settlement and immediately went to work on reconfiguring the permit which he believed would achieve a much better result not only with the blend of apartments but ultimately the Gross Realisation.

Upon approaching a number of banks and other lenders the responses varied from “not interested in doing land banks” to anywhere between 30% to 50% LVR being the maximum loan amount that could be achieved as the amended permit was still waiting for council approval.

With its 30 years of experience and contacts Finance Advocates was able to source a Mortgage Trust that was happy to take on the land bank on a combination of first and second mortgages to an LVR of 78% which will free up the clients cash resources to concentrate on the sales program of the project and to look at other site acquisitions.

If you’re a developer that needs to “land bank” a site call Renato Sturma at Finance Advocates on 1300 780 196 to discuss your lending requirements under no loan no fee and obligation free basis.

Development Finance Experience

In week five of our feature “Convincing the lender to say Yes” as published in the Australian Property Investor Magazine we focus on the topic of “Development Experience”

When assessing a loan application most lenders will look to see what projects you have previously completed even if it’s only a small project you’re attempting. Previous experience gives the lender confidence that you have the ability to ensure that a project will go as smoothly as possible from start to finish or at least show you have the capability of dealing with any issues that may arise.

This doesn’t mean first time developers are locked out of the lending market. Common sense should firstly apply in that a first timer should look to attempt a small scale project rather than a high rise apartment building.

Lenders will also look favourably if you surround yourself with good professional people such as Accountants, Lawyers, Architects and Project Managers and make that a highlight of your loan submission.

Finance Advocates Australia ( ) with its 29 years of experience can assist its clients with its vast network of professionals in providing assistance for you with these professionals for your next project. Get in touch on 1300 780 196 .

Disclosing your full asset and liability position to your Property Development Finance Lender.

We focus on the topic of “Disclosure”. It’s vital that the lender knows not only your full asset & liability position including all debts and credit cards but any adverse credit history no matter how small it may be.

Full disclosure allows your development finance consultant and lenders to address these issues upfront and discuss the circumstances surrounding them. Too often clients think that the lender won’t find out about a particular credit issue or default which may only be minor but in the lenders eyes this is seen a non-disclosure matter and may see an application be automatically declined without further review.

It’s also important to let your broker or lender know if you have approached and another lender or broker in regards to the same transaction. Most likely the other lender will have completed a CRAA check which will show on your credit file which will flag that the application has been placed with more than one institution. It will also avoid the embarrassment of your loan application turning up on the same lenders desk more than once thus alleviating the perception that the transaction is being shopped all over town and that there are issues with it.


How to prepare yourself for obtaining a Development Finance Facility?

Further to our our media feature “Convincing the lender to say Yes” as published in the Australian Property Investor Magazine we focus on the topic of “How to prepare for a Development Finance Facility”

When approaching a lending institution being a Bank or otherwise, it’s vital to be prepared with quality information and knowledge about the site and the project you intend to build. Whilst perhaps stating the obvious it’s amazing how often over the years at Finance Advocates Australia, that we have been approached by clients advising that have purchased a site without any idea of the core basics of the development.

I refer to such things as the profit margin on the job, the potential gross realisation of the project, the saleability of the actual property and is it the most suitable for the area, cost of construction and other costs such as selling agents fees and the most often forgotten GST. Too often sites are purchased without regard to the land cost because emotion gets in the way of good business sense.

Of course good preparation and thorough knowledge of what you intend to build and sell if that’s the case, makes the job of the lender in approving the finance all so much easier.

Finance Advocates Australia is a development finance specialist assisting clients with this process, and not only guides developers large and small with their development finance application but also provides a guiding path with information required and feasibility reviews.

Take advantage of our obligation free development finance feasibility assessment by calling our office today on 1300 780 196.  Or feel free to get in touch with Renato Sturma our development finance specialist directly on 0438 600 838


How to choose the right Development Finance Lender?

In this month’s feature we expand on the article recently published in Australian Property Investor Magazine title “Convincing your lender to say Yes” Our focus today is choosing the right lender.

It’s important to understand that various Bank and Lenders whilst all offering Development Finance do have in some cases vastly different lending policies. Banks for example will lend anywhere between 70% to 80% of the development cost of the project (and even the cost definition various from Bank to Bank) provided in most cases that does not exceed 65% of the projects end value.

The other vastly different adoption of lending policy is the level of pre-sales / debt coverage required. Finance Advocates Australia has arranged Bank loan funding where there has been no pre-sales however the majority of the Banks will generally require a minimum of 75% debt coverage with one major bank wanting 100% debt coverage net of agents commissions and GST.

Gross Realisation Lenders or End Value Funders take a totally different approach on the other hand. Whilst they still adopt funding on a cost to complete basis like the banks, the development loan amount is generally based on the end value of the project net of GST (in most instances its 66% on a First Mortgage Basis). This sees the borrower being able to borrow more money than a cost based funding option like the banks. Pre-Sale levels are much more flexible as well with several offering no-presales required up to certain borrowing amount generally $5m.

Using an experienced development finance partner such as Finance Advocates Australia which has funded over $1b in development deals in its 30 years’ experience, can help identify the most appropriate development loan lender for your next project and ensure the lender say “Yes” to your development finance request.