Non-bank lending to Australia property developments FAQ
Updated: Sep 27, 2020
Q1: Why non-bank lenders instead of major banks that has better rates?
N1: Property developers understands flexibility is the deciding factor when going with non-bank lender in project development funding. Lending criteria, tenure, and other conditions for instance drawdown schedule, drawdown conditions, etc are customized to projects.
Q2: What is pre-sales requirement?
N1: Banks usually has a certain level of debt coverage by pre-sales requirement, at times can be 100% of debt level or more as loan drawdown condition. This can be challenging for certain projects especially during difficult times. Non-bank lenders however can be flexible, some require as low as 60% or even no pre-sales requirement, subject to pricing.
Q3: How much can non-bank fund a project?
N1: There are various ways to look at this, either up to 70% of Total Development Cost (including soft cost and land cost) or 65% of As-if-complete net realisation. Net realisation would be the realized value net of GST and project marketing fee for instance agent fees.
Q4: How long does it take to obtain non-bank lending approval?
N1: Subject to the scale of projects and availability of documents, it can be a few weeks for non-bank lenders to grant approval.
Q5: Any requirements on builders?
N1: Yes, all lenders including banks and non-banks look at builders qualifications as a critical factor for the success of a project. Some factors lenders look at includes:
Builders past projects experience
Project manager resume
Pipeline projects in coming months/years
Cashflow of builders
Preferably past three years financial health
Past 12mth builder ATO portal record
Past 12mth banks record and Profit & Loss
Q6: Why developers need to have a QS Report? (Quantity Survey)
N1: QS Report is essential and mandatory exercise to accurately gauge the cost of building. The QS report serves as an important benchmark or reference to builders' bids and contract. Lenders will usually require an independent QS report, and may appoint their own preferred QS provider to more accurately estimate the cost. The independent QS report is one of the ultimate guidance to loan amount.
Q7: Why developers need independent valuation report?
N1: Just like QS report, an independent valuation report is critical for lenders to gauge how much to lender, to estimate the Gross Realized Value of the whole project. While QS gauges the cost of building, Valuation report gauges market elements that affect the value of the project, including the value of land and individual lots of the development.
Q8: Is independent Project Manager (PM) critical?
N1: Yes. All lenders including banks and non-banks treat the experience of a project manager very critical. The function of a capable PM doesn't just make sure the site and construction progress smoothly, also ensures costs is within control, and strict adhere to the project building cycle. Ultimately to avoid the blowout of cost and time that will be of detrimental effect to the overall feasibility of the property development project.
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