Property development can create significant opportunities, but securing the right finance is often one of the most important parts of making a project work.
Whether you are acquiring land, undertaking a subdivision, developing townhouses, building apartments or progressing a staged development, development finance in New Zealand needs to be structured around the individual project, its costs, timeline and expected returns.
At Tianyi Investment Group, we work with developers, investors and property professionals to explore development finance options through a wide network of bank and non-bank lenders.
What Is Development Finance?
Development finance is funding specifically structured to help property developers purchase land, fund construction and complete a property development project.
Unlike a standard residential mortgage, development finance is generally assessed against the overall viability of the project. Lenders may consider factors such as the land or property being acquired, development costs, expected end values, the developer’s experience, available equity and the proposed exit strategy.
Depending on the project, development finance may be used for:
- Land acquisition
- Property development
- Subdivisions
- Townhouse developments
- New-build residential projects
- Apartment developments
- Construction costs
- Staged developments
- Refinancing existing development debt
The appropriate funding structure will depend on the project and the lender’s requirements.
What Can Development Finance Be Used For?
Land Acquisition
Securing the right site is often the first major financial commitment in a development project.
Development finance can potentially help developers fund the acquisition of land where the proposed project has a clear development strategy and acceptable feasibility.
The lender will generally want to understand the site, proposed development, purchase price, expected end value and overall project economics.
Subdivision Projects
Subdivision projects can have very different funding requirements depending on the number of lots, infrastructure requirements, consent status and proposed exit strategy.
Finance may be structured around the stages of the project, with funding requirements changing as the development progresses.
Townhouse and Residential Developments
Townhouse developments are increasingly common across Auckland and other parts of New Zealand.
Funding a townhouse development requires consideration of land costs, construction costs, professional fees, development contributions, finance costs and the expected sale or completion values.
A lender will typically want to see a clear and realistic feasibility for the proposed project.
Construction and Staged Developments
Larger projects may be completed in stages rather than all at once.
Staged development finance can help align funding with the construction programme, sales strategy and anticipated cash flow of the development.
The structure will depend on the project, lender and individual circumstances.
What Do Lenders Look At When Assessing Development Finance?
There is no single formula used by every lender. Development finance is assessed on the overall strength and risk of the project.
Common considerations can include:
Developer Experience
A developer’s previous experience can be an important part of the assessment.
Lenders may look at previous projects, experience with similar developments and the developer’s ability to successfully manage construction, costs and sales.
Project Feasibility
A detailed feasibility helps demonstrate whether the proposed development makes commercial sense.
This may include:
- Land acquisition costs
- Construction costs
- Professional and consultant fees
- Development contributions
- Finance costs
- Marketing and selling costs
- Expected sales values
- Project timeline
- Expected profit
The feasibility needs to reflect realistic assumptions rather than simply optimistic end values.
Developer Equity
Developers will generally need to contribute some level of equity to a project.
The amount required can vary significantly depending on the project, lender, structure, risk profile and other factors.
There is no universal equity percentage that applies to every development.
Presales
Presales can be an important consideration for residential developments, particularly where a lender wants evidence of demand before construction funding is advanced.
However, presale requirements vary between lenders and projects. Some lenders may have different requirements depending on the developer’s experience, the project, the location, the type of property and the overall risk profile.
This is one reason why speaking with a finance adviser early can be valuable.
Project Location and Market Demand
The location of a development can have a significant impact on its feasibility and risk.
Lenders may consider the local property market, expected demand, comparable sales and the ability to sell or otherwise exit the completed development.
Do You Need Presales to Get Development Finance?
Not necessarily.
Presale requirements depend on the lender and the individual development.
Some lenders may require a certain level of presales before construction funding can be fully utilised, while other funding options may have different requirements.
New Zealand’s current development environment also includes initiatives such as the Residential Development Underwrite, which can provide eligible experienced developers with an alternative mechanism to help satisfy presale requirements for qualifying residential developments.
Because requirements can differ considerably, developers should assess their funding strategy before committing to a project or relying on a particular lender.
Bank vs Non-Bank Development Finance
Traditional banks are not the only potential source of development funding.
Depending on the project, developers may be able to consider both bank and non-bank development finance.
Banks may provide competitive funding for projects that meet their lending criteria, while non-bank lenders can sometimes provide more flexible structures for projects that do not fit traditional bank criteria.
This does not mean non-bank finance is automatically better or easier. Interest rates, fees, loan terms and lender requirements can differ, so the overall cost and suitability of the funding needs to be considered.
Working with a mortgage and finance adviser can help developers compare available options rather than approaching a single lender without understanding the wider market.
What Information Do You Need to Apply for Development Finance?
Preparing the right information early can make the finance process more efficient.
Depending on the project and lender, information may include:
- Details of the property or development site
- Purchase agreement or existing ownership details
- Resource consent information
- Development plans
- Construction contracts or cost estimates
- Quantity surveyor information
- Development feasibility
- Project timeline
- Expected end values
- Sales and marketing strategy
- Details of existing lending
- Evidence of available equity
- Information about previous development experience
- Proposed exit strategy
The exact requirements will vary depending on the project and lender.
Why Get Development Finance Advice Early?
One of the biggest mistakes developers can make is leaving the finance discussion until after they have committed to a project.
Finance should form part of the feasibility process from the beginning.
Understanding potential lending requirements early can help developers assess:
- Whether the project is realistically financeable
- How much equity may be required
- Whether presales could be necessary
- Which lenders may be suitable
- How construction funding could be structured
- What the likely exit strategy could look like
This can help identify potential funding issues before significant money is committed to the project.
Development Finance in Auckland
Auckland remains an important market for residential property development, with projects ranging from individual townhouse developments and subdivisions through to larger multi-stage developments.
However, every project is different.
Land values, construction costs, planning requirements, development contributions, market demand and expected sale values can all affect the feasibility of a project.
For Auckland developers, having a finance structure that reflects the specific project can be just as important as finding the right site.
How Tianyi Investment Group Can Help
Tianyi Investment Group works with property developers, investors and business owners across New Zealand to explore tailored finance solutions.
Our team works with a broad network of bank and non-bank lenders, allowing us to consider different lending structures based on the project and the client’s circumstances.
We can assist with finance considerations for:
- Land acquisition
- Property development
- Subdivisions
- Townhouse developments
- Construction finance
- Staged developments
- Development project refinancing
Our role is to understand the project, assess the funding requirements and help identify finance options that align with the development strategy.
Planning a Property Development?
If you are considering a development project in Auckland or elsewhere in New Zealand, it is worth discussing the finance structure before committing to the project.
Speak with Tianyi Investment Group about your development finance requirements and explore your available funding options.