Residential Property Development

What comes first, Property Investment or Property Development? In simple terms there is no investment property until property development has first occurred.

Property Development is quite different from Property Investment as is the process of borrowing capital to fund the new development from a normal residential home loan application. Unlike the traditional home loan, borrowing for development usually means a much higher interest rate will be applicable. This is usually around 2-3% higher than normal rates.

Another key area of difference is in Loan to Value Ratios. For example a standard investment security can usually be funded with an LVR of up to 95% meaning borrowers need only contribute 5% of the purchase price to acquire a fully completed property.

With Property Development, invariably most lenders are not quite as generous with the amount they are prepared to lend. In most cases an LVR of up to 70% of the value of the land and up to 70% of the value of the construction costs would be considered. Consequently a Property Developer will need to contribute far more of their own cash reserves to the transaction.

With Property Development, invariably most lenders are not quite as generous with the amount they are prepared to lend. In most cases an LVR of up to 70% of the value of the land and up to 70% of the value of the construction costs would be considered.

Consequently a Property Developer will need to contribute far more of their own cash reserves to the transaction.

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