Getting a construction loan in Australia

Tips for getting a construction loan

To always put yourself in the greatest position to put together a new construction, one of the best things you can do is seek a high quality construction loan. These construction projects can be incredibly expensive, so you will owe it to yourself to do your best to get the funding that you require. Without having to worry about a financial burden, you will be able to put together any kind of dream project that you can imagine. The best thing to do in this regard is reach out to a financial professional who can provide you with a construction loan.

Make Sure That Your Credit Is In The Best Condition

One of the most important criteria when applying for a business loan is your credit. Your credit will need to be in good condition for you to get the fair and balanced rates that you need on a loan. So run a credit check to be sure that you will be able to approach lenders in a way that will be most beneficial to you. You can also touch base with a construction loan broker who can help you prepare your credit to ensure that you get a better business rate on your construction mortgage.

Carve Out A Budget That Will Work For You

One of the worst things you can do when applying for a loan is overshoot your budget. You need to set a hard maximum for the budget and ensure that you never spend over it so you do not put your business in peril. This will also inform you in a way that lets you approach lenders with more information to use. This goes a long way toward helping you put your best foot forward in that regard.

Research The Loan And The Interest Rates That Come With It

Finally, you need to be sure that you are shopping for the absolute best rates. This will allow you to make manageable monthly payments for the construction without having these projects take years to be funded. The less financial burden the better, so that you are able to make a better return on your investment which can lead to more constructions. Shop around amongst different lenders to see who is willing to give you the most affordable rate in that regard. It will go a long way toward improving your bottom line.

Take advantage of these tips in order to learn more about these loans and how they can be useful to you as a whole. When you are able to secure high quality financing, it becomes easy to build a project to the specifications you desire. Getting help from lenders opens up your flexibility exponentially and makes it so that you are in the driver's seat with all projects. If this is what you are looking for, consider these tips and use them to close on the property that you need.

Commercial construction Finance

The success of a construction project often depends primarily on obtaining optimal construction finance terms meet the needs of the developer and the development.

Oak Laurel has a wide range of lenders, construction loans and development finance to assist you to build and/or develop property.  Oak Laurel can assist you to finance the purchase of vacant residential, commercial or Industrial land, and finance its development. This includes the construction of residential property, retail / shops, commercial property and or industrial property. We have funders that can finance a wide range of development and construction types.

Oak Laurel also has access to funders that can help with the short term funding. This can be of benefit in the initial stages prior to the development approval being granted and in some cases to complete the final stages of a development in the event of a funding shortfall.

Residential construction loans are generally provided on an interest only basis at a variable rate during the construction period. At the end of the construction period the construction loan will revert to a standard home loan or investment loan that has been pre-agreed by you and your lender. If you have development finance for a large scale development the fished property will either be sold at the end of the construction or refinanced from the development finance into and ongoing loan.

Because construction finance typically operates on a draw down basis, that is funds are provided on an as needs basis to pay the builder for the completion of milestones, the borrower will only need to pay interest on the funds that have been ‘drawn down’ (paid to the builder).

Commercial construction financing, for larger scale property development, is typically provided on a variable interest rate basis. However, fixed interest rate loans can be provided in some circumstances such as where the land is acquired and the development is not ready to begin for a certain period of time.

Mezzanine debt / or second tier debt can be provided for some development projects where additional funding is required above the amount / loan to value ratio provided by traditional banks and lenders. Mezzanine finance is typically provided when the developer’s equity is insufficient to make up the difference between the first tier funds and the development costs. Mezzanine debt is typically provided at an interest rate but because the amount is relatively small the total cost to the project is relatively small.

Construction Progress Payments

Construction Progress Payments: Information about construction loans

What is a construction progress payment?

A construction loan progress payment is a payment made by the bank or lender on completion of a building stage according to the agreed schedule. This is often called a draw down payment.

Typically builders request five progress payments. One at the completion of each major stage of construction. A progress payment is where your lender pays your builder directly for this progress made on your construction.

The lender will not pay the construction progress payment immediately. It can take up to 10 working days to process the first and last progress payments and five working days to process other progress payments. It is a good idea to call your lender after you send progress payment request to ensure that they are aware of it and are acting the payment.

Usually residential property construction projects are split into five stages and with a progression payment due at the end of each stage. The fixed price contract agreed to by you and your builder will state how many payments, how much for each payment and when the payments are due. Your lender will make the payments according to the schedule in your building contract.

Payment should only be made to the person or company whose name appears on the building contract and at the times nominated in your building contract.

How do I get a progress payment made?

The first progress payment

To have the first progress payment paid you will need to provide the following documents to the lender:

·         The first progress payment request.

·         Approved Council plans.

·         Fixed price building contract Signed buy you and your builder.

·         Building permit (VIC) or Construction certificate (NSW) or Decision notice (QLD).

·         Builders Insurance (certificate of currency).

·         Builders Indemnity / Public Risk Insurance to a level acceptable to your lender.

Allow sufficient time for your lender to receive and process the documents prior to expecting the progress payment to be paid.

Subsequent progress payments

Send to your bank or lender the following documents:

A signed progress payment request form (available from your lender) OR a signed letter from you authorising payment.

A copy of the invoice from the builder. Some lender will require you to sign the builder’s invoice.

You and your builder may need to allow a representative from your bank or lender to access the building site to inspect the progress and check that the construction is to an acceptable level of workmanship. Some lenders will charge you a fee for each inspection. You may also be charged a drawdown fee to cover your bank or lender’s cost of dispersing the funds.

Requesting you final progress payment

Your bank or lender will usually send a valuer to inspect your finished property to confirm that it has been completed according to the plans and specifications of the building contract. Payment will be withheld if all of the contracted works have not be completed.

You may need to provide additional documents to the lender prior to the final payment. Contact your lender to confirm what these will be. Typically these will be:

A Certificate of Occupancy, also called Occupancy Permit, Final Occupation Certificate or Certificate of Classification. This is to show that the building is up to the relevant standards and is safe to be lived in.

A copy of your building insurance with enough cover to replace the building. This copy must also include your bank or lender’s name on the policy;

A signed progress payment request form (available from your lender) OR a signed letter from you authorising payment; and

A copy of the invoice from the builder. Some lender will require you to sign the builder’s invoice.

Want to know more about the construction loans? Find out about the construction loan process.

Construction Costs in Australia Decreasing

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Construction cost in Australia are among the most expensive in the world but are coming down according to an international report.

A report by Turner & Townsend a multinational professional services company ranked Sydney at 10th, Perth at 16th, Melbourne at 19th and Brisbane at 20th most expensive cities in the world for construction costs.
The study analysed 35 residential and commercial projects in different markets around the world and found that New York is the most expensive place to undertake construction activities.

Markets analysed and the report’s predicted construction market in next 12 months included:

Cooler	Staying the same	Warmer
Australia – Perth	Australia – Melbourne	Australia – Sydney
Brazil	Canada	Doha
China	Chile	Hong Kong
Kazakhstan	Germany	Ireland
Malaysia	India	Kenya
Russia	Japan	Netherlands
Singpore	Poland	UAE
Uganda	South Africa	UK – Central
–	South Korea	UK – London
–	Vietnam	UK – North
–	–	UK – Northern Ireland
–	–	UK – Scottland
–	–	UK – South
–	–	USA – Houston
–	–	USA – New York City
–	–	USA – Seattle

Construction market in Australia

According to Sourceable Senior economist Gary Emmett from Turner & Townsend said Australia is becoming a relatively cheaper place to build, due to low interest rates and a falling Australian dollar.

“The 2015 report shows that compared to 2011, it would cost overseas investors paying in US dollars 13 per cent less to construct buildings in Australia, which is a significant reduction,” he said.

Mr Emmett said that with the exception of Sydney’s apartment market, the cost of construction is stable and the outlook moderate for the medium term.
“Overall, it is a great time to build. Construction costs should remain fairly stable although some residential construction trades may become increasingly difficult to source, adding pressure to costs,” he said.
“Foreign investors are expected to seek more opportunities here to capitalise on the favourable conditions to build projects.”

Construction cost per square meter in Australian cities

The Turner & Townsend report estimated construction costs of detached houses, townhouses, low rise apartments and high rise apartments in the Australian cities Brisbane, Melbourne, Perth and Sydney.

Detached house construction costs per square meter in Australian cities

The construction cost of building a detached house is $1,600 per square metre in Melbourne, $1,650 in Brisbane and Perth, and $1,750 in Sydney.

Building a prestige detached house costs $2,700 per square metre in Melbourne, $2,850 in Sydney, and $3,000 in Brisbane and Perth.

Townhouse construction costs per square meter in Australian cities

Townhouses construction cost $1,700 per square metre in Brisbane, $1,750 in Melbourne, $1,850 in Perth and $1,900 in Sydney.

Low-rise building costs per square meter in Australian cities

Construction costs to build low-rise apartments are $1,800 per square metre in Brisbane, $1,900 in Perth, $1,960 in Melbourne and $2,100 in Sydney.

High-rise construction costs per square meter in Australian cities

High-rise apartments building cost $2,500 per square metre in Brisbane, $2,700 in Melbourne and Sydney, and $2,900 in Perth.

Borrowing to build your dream home or a small development project?

A construction loan may be a good choice for a single dwelling (house, townhouse or unit) or up to 4 dwellings (houses, townhouses or units on a single title - prior to subdivision) in a small property development. Find out about Construction loans here:

Construction loans

Borrowing to build a larger property development project?

Larger property development projects (multi-dwelling developments - houses, townhouses, units or apartments) require specialised construction finance.

Property development finance

Oak Laurel – Construction and development finance made easy!

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Home construction loans: how do construction loans work

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Construction loans

Building your dream home can be an exciting experience. Taking an idea and turning it into reality can be a rewarding experience if done right. When you build your own home you can decide how you want it to be.
It is not always trouble free. Constructing a home can be a long and expensive process and there are many possibilities that things can go wrong.
If you are borrowing money for the construction of the home then the lender is also taking on the risk that something will go wrong. The major risk is what the finish building will be worth. Some of the other risks include the quality of the builder. If the builder does not finish the building it can be very difficult to sell an unfinished home without providing a significant discount on the price. Even if the builder does finish the home, if the quality of the finished home is poor then the value may be less than expected.
Lenders don’t like taking on a lot of risk and will put in measures / requirement to reduce this risk. In the case of lending to build a home some lenders offer home construction loans, with all their strict criteria, specifically for this purpose.
Typically, a qualified and licenced builder must be engaged. Furthermore, the lender will want you to have a fixed price contract (not a cost plus) with the builder so the lender knows exactly how much it will cost to finish the building. Owner builder construction loans are available but generally only for builders who are building their own property. This means that you may have an especially hard time finding an institution to finance your project if you are intending to be an owner builder.
Having a fixed price with a licenced builder is only one of the many requirements of getting a construction loan.
Did you know that some lenders will allow you to use a construction loan for a three or even four units/townhouses development? If you are undertaking a small development contact us to go through your options.

Find out more about construction loans

Find out about the requirements and process of getting and using a construction loan. Everything you need to know.

Construction loans

Oak Laurel Mortgage Brokers – Construction loans made easy!

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Funding property development: property development loans tips

Funding property development: property development loans tips

Raising finance for property development

If done in a professional and organised way, property development can be very financially rewarding. However, there are also significant risk involved. If you need to raise finance for your property development project you will need to convince the lender that you know what you are doing and that their money will be safe if they loan it to you. Proper planning to the level appropriate to the complexity of the development will need to be demonstrated to the lender before they will approve your property development finance.

Funding a property development is riskier for lenders than a buy and hold (owner occupied or investment) property loan. Therefore the lender will be more cautious and have stricter assessment criteria. Once you have completed a number of successful property developments and can demonstrate that you know what you are doing, the banks and lenders will be more willing to lend you money. However, until you have built up a track record it is advisable to have an experienced team of professionals, including an experienced project manager.

Using a finance broker that specialises in property development finance will also make your finance application run smoothly. Oak Laurel has specialist finance brokers that know the different lender’s requirements and can guide your application through the process.

What do lenders expect in a development finance application?

When you are applying for development funding you will want to tailor your application to the lender(s) to which you are applying. Each lender has their criteria or conditions that need to be met before they will approve a property development finance application. This is not unlike other types of credit applications, however, the lenders view property development finance as investing in a business and that want to know that the business concept and profitability stack up and are worth the risk of their investment.

By putting together a quality finance submission in the form of a business plan or dossier for your project you will be demonstrating to the lender that you have considered all of the different aspects of the project and that the project is a low risk and profitable investment for them.

The process of putting together a business plan for your project that includes a detailed feasibility will also help you as a developer in making sure that you have considered all of the different aspects, identified problems and how to overcome them before your project starts. If in the end you can’t see a profitable project in the planning stage to there is no point for you to raise finance for property development or undertake the project unless something changes to make it worth doing.

What should be contained in your development finance application?

Your application should contain a summary about the project and its profitability but also contain a project feasibility which is the details of the project and of how you have come up with the numbers. For example if you are building a multi-unit development or multi-townhouse development, you will need to provide a break-down of the costs (where applicable) of acquiring the land; site-Related costs; building costs; professional fees and expenses; letting expenses (where the finished development will be let/rented to tenants); sale costs; legal costs and fees; planning and building regulation costs; cost of raising finance; holding costs; interest charges. You will also need to provide an estimate of the revenue from the sales. The values you are stating in your calculation should be estimated accurately, for example if you state that the finished development is a number of townhouses or units you should be able to demonstrate how you estimated the sale prices based on comparable sales.  

Property development valuation process

After assessing your application on paper, if the lender is still interested to proceed, the lender will require a valuation from a professional valuer. The valuer will go through your proposal and independently assess your project. If there are any issues like missing expenses or underestimates of the final sale prices, the valuer will identify them. This is where some poorly planned projects or projects with problems run into trouble.

Required property development profit margin

Often the financier will require the developer to demonstrate that a heathy profit martin will be obtained from the project. Typically, a profit margin of 15% or more of the total development cost (after all expenses including interest) will be required by the lender in order for the project to obtain finance.

Property development finance interest rates

Lenders generally do not publish their Property development finance interest rates. Instead these are negotiated between the lender and the developer or finance broker on the developer’s behalf. This is one area where a good finance broker can be a real asset to your development project. A good finance broker with experience in property development finance will be familiar with the interest rates, terms and conditions that lenders are offering and can often get a better package and your finance approved quicker than if the developer negotiates directly with the lender. This is particularly true if the developer has limited experience in financing developments the lenders may consider them an easy target.

Get your property development financed: Property development finance 

Find out about how to get your property development finance approved. 

See more about property development loan tips: Property development tips

Undertaking a small property development? May be a construction loan will be a better option.