Is your company seriously considering the expansion of its physical assets? For instance, you may be thinking of moving into a new headquarters, doing a general refurbishment, or purchasing property upon which new structures may be built. If so, you’re most likely in the market for property development finance.
The property development finance industry is growing at an incredible rate mostly because it is a solution for companies with over-leveraged balance sheets looking to refinance or extend their lending terms. Large corporations are now looking at refinancing their debt for massive developments by structuring highly leveraged loans to avoid defaulting on payments. Read this article to learn more about property development finance!
An Introduction to Property Development Finance
Unlike more standard mortgages or bridging loans which can be availed of for refurbishment or improvement of homes, property development finance is specifically for large-scale corporate or industrial construction or renovation.
The overall scale of the project and its scope will determine what sort of property development finance you and your company should apply for. But take note that this type of loan will only run to about 70 to 80 percent of your total build cost; you will need to make up the remainder. You can do this by putting up any other properties you own as security for the loan.
What Projects Can Benefit from Property Development
Availing of property development finance can help defray the cost of the following activities:
- Minor refurbishments to a structure, including aesthetic, light structural issues, internal reworking, and even touch-ups for floors, walls, and ceilings. Take note that financing for this type of activity is short-term and may be turned around through auctions or bridging finance;
- Major renovations, which call for heavier refurbishment such as the building of extensions and the demolition or moving of internal support walls. These activities call for longer-term financial instruments or commercial mortgages; and
- Ground-up development, which may involve more complicated plans and larger teams of architects, designers, and builders. The term covers everything from the purchase of land to the actual construction. Financing for ground-up development is usually long-term, spanning months or even years.
Property finance becomes more complex in this context as the loan is not handed over in one go; instead, funds are released within an agreed-upon schedule until the project is finished.
What Types of Property Development Finance Can I Consider?
While your purpose pretty much dictates the payment terms, knowing what sort of property development finance to get depends on what kind of property you mean to buy or the initiatives you have in mind. Here are several common options:
- Commercial mortgages are used to enable borrowers to purchase property such as offices, retail outlets, or industrial facilities – essentially, every type of property development that doesn’t involve the construction or refurbishment of a private residence.
These are the easiest loans to avail of and also the easiest to understand, as these work in pretty much the same way as a standard private mortgage. You can spread payments across a specific time frame depending on your needs or your capacity to pay;
- Auction finance, on the other hand, enables those who don’t have cash on hand to snap up property that is up for bids. This allows buyers short on cash to pay for their purchase in case they win immediately. It also lets borrowers access more substantial sums in a shorter amount of time; and
- Bridging finance in the property development context is similar to its residential counterpart: a short-term loan, payable in a few months, which will bridge the gap between purchasing property and securing more permanent financing for it.
These are provided quickly, serve as a type of short-term mortgage, and offer enough to complete a quick refurbishment or a property flip.
Reach Out to the Experts
We have talked about Property Development Finance and its function, which is to assist in the construction, renovation, or refurbishment of commercial properties. Remember, opting for property development finance is a business decision that needs to be planned out in terms of the overall progress of the project, the timing of the loan, and your company’s business needs.
Want to know more? Get a development loan here or see property development financing solutions to suit your needs.