Are you set on working on a development project? You’ll need to know how development finance in NZ works to acquire development funding through the proper channels and methods.
Here’s what you need to know about development finance to get you started.
What is development finance?
Development finance refers to financial support to facilitate small to large-scale property investments. Generally, this entails development funding for commercial, residential, and industrial properties.
Development finance in NZ can also include construction projects. This financing often starts with a loan that helps with land acquisition and a loan with set payment terms to shoulder other development costs.
When can you utilise development finance?
1. Residential property development
You can utilise development finance to build one or more houses, renovate a residential property, or convert a commercial building into homes/rental units. Developers can also use development finance to buy or sell the development property.
2. Commercial property development
Development funding is possible for building and converting properties into office spaces, retail, and leisure establishments. Lenders will look if you have a pre-let set for commercial development to maximise the loan offer. However, some lenders will overlook this condition.
3. Refurbishment projects
Refurbishing or redeveloping a property through development finance in NZ is possible. These projects can range from considerable structural changes to wide-scale renovation. However, consider a short-term development funding solution if you’re working on minor refurbishment or redevelopment projects.
What are the types of development finance?
There are two primary types of development finance: ground-up development and heavy refurbishment/renovation.
- Ground-up development is a type of development finance that entails funding a development project from the land purchase until completion. For example, you acquire undeveloped land to build a new neighbourhood.
- Heavy refurbishment/renovation is a development finance type that involves funding projects with comprehensive building works to an existing building—for example, transforming a retail unit into a residential property.
What are the factors to consider when acquiring development finance?
Being aware of the underlying expenses when obtaining development finance for your NZ development project is critical. Here are some of the costs to watch out for:
- A lender will charge a lender arrangement fee as a set-up fee or prerequisite for the loan. This amount is usually 1-2% of the loan’s value.
- A development project entails collaborating with many professionals, such as solicitors, contractors, and property managers, to name a few. Knowing this, take professional fees into account when setting your budget.
- Interest rates will depend on your loan’s size.
- You must prepare broker fees after your broker helps you find a suitable lender for your development finance.
- Your lender will need a third party to conduct an initial valuation, resulting in valuation fees.
- A monitoring surveyor will charge monitoring fees for the initial report and every monthly report that follows.
- The number of exit fees you must pay varies from lender to lender.
Development finance literacy can set you in the right direction when starting a new development project.
With this guide, we hope you can make an informed decision and strategically work on development finance towards NZ properties. It’s advisable to consult a reliable finance company if you aren’t sure how to utilise development finance in NZ.
