For many developers, the question that inevitably arises is how the property development should be (or could be) funded.
In answering this question, various factors need to be considered in the context of the particular facts and circumstances of each developer and the proposed development.
Given the industry is so capital intensive, access to development funding is an integral part of the property development process. Over the last few years, capital has become harder to secure since the global financial crisis, the banking royal commission (BRC) and in more recent times an unprecedented construction boom.
It is now more important than ever for developers to have a clear understanding of how to secure funding and satisfy the requirements of lenders.
More often than not, developers will be well versed in the basic factors that need to be considered, such as:
- determining the appropriate mix between the developers own funds and funds that may be advanced by a third party
- whether those funds should constitute ‘debt’ (loans) or ‘equity’ (shares or trust capital)
- the terms and conditions associated with the funds advanced (costs, duration, repayment, the share of profit)
- the economic feasibility of the development thereon.
However, additional considerations come into play at a higher level, and which are often overlooked...
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