Property development finance refers to a type of funding that is intended to assist with new construction, partial construction, or extensive renovations. Property developers, investors, and landlords commonly utilise this form of financing, known as a property development mortgage, to acquire the necessary capital to move forward with their projects.
Development finance is a collective term for various funding solutions tailored to supporting property development projects. From initial land purchase to the construction and sale of completed units, Diamond Property Finance can assist in sourcing development finance solutions.
The following are the different types of funding and property types that are supported by our services:
Funding Types
We also provide financing options for various property development projects, including:
Our financing options cater to both first-time developers and professional builders.
Development finance funding types
Senior Debt – Used to fund the initial stages of property development, including land acquisition and construction costs, senior debt development finance is secured against the development property. Typically, senior debt finance covers up to 60-70% of the project’s gross development value (GDV) or 70-80% of the total costs.
Stretched Senior – Offering a higher loan-to-value (LTV) ratio than traditional senior debt, stretched senior development finance bridges the gap between senior and mezzanine finance, typically up to 75-80% GDV.
Mezzanine finance – Filling the gap between senior debt and a developer’s equity, mezzanine finance is subordinate to senior debt, resulting in higher interest rates. It is often used to increase the total funding to 90-95% of the development cost.
Equity finance – By selling a stake in the property development project, equity finance can be raised. It is often suitable for larger projects with higher potential returns. No regular interest payments are made because investors are repaid through profit share once the property development is complete.
Joint Venture – By partnering with another investor or finance provider, joint venture development finance can be raised by shares in the development’s profits, in exchange for funding. Commonly used when property developers have significant expertise but limited capital because the risk and profits are shared based on the agreement.
FREQUENTLY ASKED QUESTIONS
What is property development finance?
How to get finance for property development?
To secure finance for property development:
1. Assess Project: Clearly define the scope, costs, and potential returns of your development project.
2. Create a Detailed Plan: Develop a comprehensive business plan, including project timelines, cost breakdowns, and revenue projections.
3. Research Lenders: Identify lenders specialising in property development finance and compare their terms and interest rates.
4. Collateral: Be prepared to offer the property being developed as collateral for the loan.
5. Creditworthiness: Demonstrate a strong financial position and a track record of successful developments.
6. Loan Application: Complete the lender’s application process, providing all necessary documentation and project details.
Who is eligible for development finance?
Eligibility for development finance varies among lenders, but some general criteria include:
– Experience: Lenders often prefer developers with a proven track record of successful projects.
– Financial Stability: A strong financial position and positive credit history enhance eligibility.
– Project Viability: A well-researched and feasible development plan increases the likelihood of approval.
– Collateral: The property being developed is commonly used as collateral.
– Business Plan: A detailed and compelling business plan showcasing the project’s viability.
