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For developers and investors
Development lending is priced on the project, not just on you. Which product you need depends on the stage you’re at, from buying land to selling the last unit.
By Yatin Kainth, Financial Adviser FSP1007497. Last reviewed
Short answer
Property development finance in NZ is short-term lending for buying land, building homes or units, renovating to sell, and holding finished stock. Lenders size the loan against land value, build cost and the expected sale value (gross realisation), and usually want pre-sales or strong equity. Rates and fees are higher than home loans, and terms are usually 6 to 36 months.
Pick the option closest to where you are and I’ll point you to the right page.
Buy, renovate and sell.
Flipping →Hold land through consents and rezoning.
Land →Townhouses, units and subdivisions.
Development →Funding for unsold finished units.
Residual stock →Extra short-term funds behind a first mortgage.
Second mortgages →Check if your project is fundable before you commit.
Run the check →Three numbers do most of the work:
Example: land $900,000 and build costs $1,600,000, so total cost is $2,500,000. Four townhouses with an expected sale value of $3,200,000. At 75% LTC the loan is $1,875,000, which is 59% of the sale value, so it passes a 65% LGR test. Profit before finance costs is $700,000, or 28% of cost. You’d need about $625,000 of your own money or equity, plus interest and fees.
Main banks fund some developments, usually with pre-sales and experienced developers. Non-bank and private lenders fill most of the gap, especially for smaller projects.
Usually 20 to 35% of total project cost, from cash or equity in other property.
Lenders usually size loans excluding GST, and many can fund the GST on land purchases short-term. Talk to your accountant about registering.
Indicative terms can come in a few days. Full approval with valuations and a QS report usually takes two to four weeks.
Send me the numbers. I’ll tell you whether it’s fundable and which lenders suit it.
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