Development “Finance also is known as construction finance, or property development finance” is a form of funding that assists with building multiple, residential or commercial properties.
This form of funding is available through Australia’s big banks, non-banks and private lenders.
What is Gross Realised Value (GRV)?
The gross realised value (GRV) is the ‘on completion’ value of a property development project. This is a common term used by many banks, and development finance providers and is used to determine how much borrowing they can extend. Most will fund against GRV, excluding GST.
What is Total Development Costs (TDC)?
Total development costs (TDC) is the complete sum of all the costs to purchase your development site, obtain the DA, construct (including contingency), marketing, sales as well as interest and holding costs. The TDC represents all the costs involved with completing a project.
Why You Use a Bank for Development Finance?
As I mentioned, property development finance is needed if you want to build a block of units or townhouses. A few years ago, the only way of getting these funded would be to go to see your local bank.
They’d tell you how many pre-sales were required, the maximum TDC (total development costs) and GRV (gross realised value) and you’d be away. In the last few years, the banks pre-sale hurdles have increased and increased. For example, we funded a recent customer through one of the major banks and they wanted to see 50% of debt cover in pre-sales, but would only extend to 70% TDC. In other words, they needed to show $4m in pre-sales to cover the $8m in debt the bank was giving them.
(And we all know off the plan sales aren’t getting easier)