Everything you need to know about Financing Property Development

It has been seen that property development has been found to be a very profitable industry. Thus, when you think of investing in developing property, then you can avail of property development finance. It will permit you to take larger schemes and you do not have to utilize all your capital.

A brief overview

If you are wondering what is Financing Property Development, then here is the answer for you. It is a loan type that is a secured loan against the land or property and is like the same loan as the traditional mortgage loan. Though property development loans are short-term loans and are utilized to fund building, property, or conversion. Most development finance creditors provide a certain percentage of site purchase provided that the appropriate preparation is in place.

How much is the cost?

The cost of Financing Property Development varies from lender to lender. The price charged is usually around 5% and it can go up to 16.2% per annum. The rate of interest that is charged depends on the perceived application risk. The lender will visit the site and will evaluate the experience of the client in the same project, loan size, and overall loan. Apart from the interest, there are other fees also that must be taken into consideration. The lender charges arrangement fees for setting up your loan and it is generally 1-2% of the total facility cost. Further, there are some lenders who charge a redemption fee when the loan is redeemed.

How much one can borrow?

The funding level offered by Property Finance Companies South Africa, is usually restricted by security value. The loan amount is released by the lender in stages. It is either broken down and the amount is released monthly or it is given as per the demand as the project development progresses.

When you consider borrowing money for property development, you can borrow up to 70% of the money as total facility cost.

How do the lenders assess the application?

The process of assessing the application of each lender is different though there is a huge limit on the information requested by the lender. Usually, the following information is requested by the lender:

1. Personal details
2. Planning permission details including future applications or planned revisions if any
3. Detail project costing and schedule for the scheme
4. Details of the professional advisors like accountants, solicitors, architects, and contractors.
5. An updated development CV for the borrowers; must contain all the details of the previous schemes that have been undertaken.

Final note

Financing property development is not a small matter whether it is residential or commercial property. Thus, before you proceed to approach a financial institution for a loan, you must understand the process thoroughly as it will save both money and time and will prevent you from getting into any legal problems.