Tag: Challanges

When we receive a development funding enquiry, the first question we usually get asked is:

“What are your rates and fees?”.

It’s a fair question – but comparing lenders isn’t that simple.

Two lenders may offer similar rates and fees but deliver vastly different client experiences, structure those charges differently, and impose terms and conditions that significantly impact the actual cost of funding.

Beyond that, these differences can materially affect how and when you access your development loan. They also shape the overall borrowing experience and, ultimately, your ability to keep the development moving and bring it to a successful completion. In this blog, we look beyond the headline figures and explore what makes a good term sheet.

Rates and Fees

We’ve talked about pricing in plenty of detail elsewhere, but it’s worth touching revisiting – for many developers, rates and fees are still the first thing they look at when choosing a lender.

The headline numbers, though, rarely tell the full story. Lenders might quote a low interest rate and a small monthly line fee to mask what is a high IRR loan when annualised and combined with the establishment fee. Others may have fixed extension fees irrespective of what the additional required term is, or early repayment fees that only show up when timelines shift or settlements happen ahead of schedule.

Line fees should be carefully considered, particularly in cases where there is no initial cash advance against the land (i.e., the land is unencumbered). If your project is delayed due to unmet pre-drawdown conditions, line fees may still accrue based on the full facility limit. This is an important distinction to – interest is typically only charged on the drawn loan balance, whereas line fees apply regardless of drawdown activity.

That’s why it’s important to look beyond just “what’s the rate” and instead focus on how fees are structured. The true cost of funding comes down to the detail – and how those details line up with the realities of your project.

Terms and Conditions

In our view, the terms and conditions (T&Cs) are equally as important and should be scrutinised in the same manner. While interest rates and fees can be comparable across similar lenders, T&Cs are where differences truly show up – and those differences can make or break a project.

You’ll typically see the T&Cs in the form of:

Conditions precedent (CP): These must be satisfied before the loan is drawn down. They’re the lender’s way of ensuring all key information and requirements are in place before releasing funds. Common CPs for development loans include consents and plans, insurances, KYC and AML documentation, development programs, construction contracts, presale agreements and more.

Ongoing conditions: These must be maintained throughout the loan term. They might include regular reporting such as QS reports to facilitate progress drawdowns, filing of GST returns, submission of council inspection reports and generally ensuring the project adheres to key timelines. Think of these as the operating rules of the loan.

Conditions subsequent (CS): These are obligations that must be met after the loan has been drawn. These are less common and are usually used by lenders as a means to control or mitigate risk. Pre-sale hurdles or targets are the best example of this, along with deadlines for council sign offs or compliance requirements.

Lastly, any CPs that the lender waives during part of the initial settlement process typically fall to become a CS. Note, this is always at the lenders discretion so its best to satisfy CPs in full before the settlement date.

Meeting your obligations as a borrower

In property development the stakes are high and failing to meet a loan condition can have serious consequences: it might delay settlement, delay or prevent progress payments, or even trigger an event of default – giving the lender the right to cancel the facility or demand immediate repayment.

As a developer, ask yourself:

1. Are the conditions reasonable?
2. Can I deliver on what is being asked of me, within the timeframe that is required.

The thought process here needs to be broad and needs to extend to all parties that may be involved in the process.  It’s not just about the loan terms – it’s about execution. For example;

If a lender imposes a post-settlement condition requiring a council sign-off by a certain date, you’ll need to:

• Ensure your contractor prioritises the required work
• Understand what reports or documentation may be needed to support the application to council
• Account for council processing times
• Build in a buffer for delays

Failure to manage these moving parts can result in missed deadlines, breached conditions, and a risk to the project’s success.

Remember, funders place great weight on a borrower doing what they’ve promised to do. Losing the support of your funder can trigger major issues, often requiring a refinance under pressure. As a lender, we regularly receive refinance applications from clients who have run into trouble after failing to meet their stipulated conditions precedent (CPs) or conditions subsequent (CS) from their previous development funder.This highlights the importance of a clean, well-understood term sheet that sets clear and achievable expectations from the outset.

What Makes a Good Term Sheet?

A “good” term sheet is one that enables flexibility, aligns with your development timeline, and limits surprises. It doesn’t mean there are no conditions—it means the conditions are clear, realistic, and manageable. A lender offering simple, transparent terms with minimal red tape can often be a better partner than one offering a cheaper loan but hiding behind layers of complexity.

If you’re looking for development finance and want to work with a lender who values clarity and backs your ability to deliver, get in touch with the team at ASAP Finance.

Property development is a complex process that demands strategic planning, careful risk management, and access to the right funding solutions at every stage. The funding cycle typically consists of four key phases: Pre-Purchase, Consenting, Settlement, and Development. Each phase comes with its own unique challenges and funding considerations. Here, we break down the critical stages of a project and their funding requirements.

(1) Pre-Purchase

During the early stages of a project, most costs are funded through cash equity. At this point, there’s no security to obtain external funding (such as a mortgage), and the risks associated with the project are higher. This stage is about validating the assumptions in your feasibility study.

Your equity should cover two critical areas:

1. Due Diligence: This includes liaising with planners on bulk and location studies or consulting engineers about a site’s infrastructure limitations. Many developers hesitate to spend money on due diligence before going unconditional on a property, but it’s often the best investment you can make. Spending a few thousand dollars upfront to avoid a bad project is a win.
2. Deposit Payment: When declaring the contract unconditional, the agreed deposit—usually 10% of the purchase price—must be paid. This is almost always funded by the developer’s own equity.

(2) Consenting

Consenting typically begins immediately after the contract goes unconditional. Like other pre-development milestones, these costs are generally funded by the developer. Note, these expenses are still considered by funders (along with other consultant costs) when calculating the project’s loan-to-cost ratio at the development stage.

Timing is Key: Aim to complete as much of the consenting process as possible before settling the property. The process can take up to nine months, depending on the complexity of the project and council requirements.

Deferred Settlement Advantage: Securing deferred settlement terms can be highly beneficial. This allows the vendor to carry the financing costs while you navigate the consenting process, reducing the financial strain on your end.

(3) Settlement of Property

The settlement phase is a significant milestone and often the first point where external funding is triggered. Developers typically adopt one of two strategies:

1. Maximising Leverage: Inject minimal equity into the land settlement to preserve capital for other project needs, such as initial enabling works.
2. Reducing Funding Costs: Inject maximum equity (cash) into the land settlement, ensuring the development funder will finance the project (including enabling works) as part of their facility.

Land Settlement Funding: Loan-to-Value Ratios (LVRs) for development land are typically around 60%, reflecting the higher risk compared to completed properties. One of the reasons for this is because land values are particularly sensitive to market fluctuations; for instance, a 10% drop in house prices can result in a 30% decrease in land value.

Strategic Lending Decisions: Low-cost funders, such as banks or “near-bank” lenders, are often used for the land settlement if the site is not consented or shovel-ready. However, if deferred settlement terms are close to the commencement of work, developers may settle directly into a development facility, establishing an early strategic partnership with a development lender and ensuring a smoother project transition.

Development Phase

The development phase involves the largest equity injections, making it the most critical stage of the project. Developers who inject significant equity during settlement often find development funding easier to secure. Those relying on high-leverage land facilities may face additional hurdles, such as:

1. Debt Reduction: Re-settling into a development facility by reducing existing debt.
2. Completing Enabling Works: Reducing the cost-to-complete by finishing initial works, such as ground preparation or drainage.

How Should Equity Be Injected?

As a lender, it’s our preference to fund 100% of the cost-to-complete, reducing any existing lending to unlock the development loan facility. This gives us transparency over how the construction phase of the project is to be funded (and paid for).

However, a development facility might include a refinancing of an existing loan and a cost-to-complete facility that assumes some initial work has already been done. This approach shortens the development program and minimises the period non-bank funding is required; however, it can catch developers out if funding is not obtained in time for the next stage of the project.

Ultimately, the best solution depends on the developer’s experience and ability to manage the project.

What If More Leverage is Needed?

While there’s no substitute for cash equity, the following strategies can help stretch your resources:

• Securing Pre-Sales: Pre-sales validate the project’s price point and provide lenders with a clear exit strategy. This can increase willingness to offer better terms.
• Validating High-Risk Cost Items: Completing initial groundworks or other risky tasks upfront can provide lenders with greater confidence.
• Releasing Value Early: Obtaining freehold titles early can allow you to restructure debt and kick-start portions of the project.
• Staging the Project: Breaking the project into stages reduces overall funding requirements and aligns with traditional funding metrics over time.

Conclusion

The property development funding cycle involves navigating multiple stages, each with unique challenges and requirements. From pre-purchase to project completion, developers must carefully balance equity injection, risk management, and lender expectations. Strategic decisions at each stage can significantly impact the project’s viability and profitability. By understanding the intricacies of the funding cycle and partnering with the right financial institutions, developers can position themselves for success in a competitive market.

For more info, reach out to our Lending Team.

The property development landscape is constantly evolving, and in today’s climate, developers are facing a unique set of challenges that are reshaping the way projects are planned, financed, and executed. From regulatory hurdles to surplus residual stock, understanding these obstacles is crucial for navigating the industry successfully.

After speaking with our clients, we thought we’d provide an update on some of the key challenges developers are currently facing.

Pricing and Affordability

• It’s no myth that perhaps the biggest influence on property prices is interest rates. Rising interest rates have increased loan servicing costs for both owner-occupiers and investors. With higher borrowing costs, purchasers can afford to borrow less, which directly impacts property prices.
• Buyer profiles are shifting. A purchaser who might have considered a $1M property a year ago may now be limited to an $800K budget due to current interest rates.
• This makes the price point of your product one of the most important considerations for today’s buyers. Developers must understand their target market, what’s important to them, and how to deliver value while keeping prices attractive.
• Not all news is bad—all major banks are forecasting further OCR cuts, which should lead to lower mortgage rates and servicing costs.
• Selling remains tough, but a common theme among our clients is that well-designed, well-built, and appropriately priced developments continue to sell—though agents are having to work harder. In contrast, projects with poor design and substandard quality are struggling to attract buyers.

Surplus Stock and Increased Competition

• The past few years of booming development pipelines have led to an oversupply of certain types of stock, making it harder to stand out in the market.
• This increase in stock, give buyers more choice, and comparing one project to another project has never been easier. Developers with generic or poorly positioned projects are facing greater challenges in sell-downs, while those who differentiate their product—through quality, pricing, or design—are still transacting successfully.
• As a property developer, you must have a competitive mind set.  You are competing against other property developers to deliver the best product to market.

Increased Regulatory and Compliance Burdens

Navigating the regulatory environment has become more complex, with councils imposing stricter requirements on developers. Resource consents, zoning changes, and infrastructure contributions have added significant costs and delays to projects.

• Higher Infrastructure Costs – Developers are being asked to contribute more towards infrastructure upgrades, increasing costs at both the local council level and through large utility providers.
• The Utilities Monopoly Problem – Large utility providers, operating without effective competition, continue to issue excessive invoices—only to reduce them when challenged. We’ve seen numerous cases where a utility provider has dramatically overquoted costs, only for a developer to find a much cheaper solution when proactively exploring alternatives.
• Due Diligence is Key – The Auckland Watercare red zone debacle is a prime example of council failures impacting developments. Large-scale infrastructure limitations were imposed with little warning, catching developers off guard. The takeaway? Due diligence is everything. Leave no stone unturned in ensuring your site is developable.
• Consenting Delays Continue to Worsen – Despite improvements in other parts of the development cycle (labour, materials, funding availability), council approval times continue to get worse.
  • Consent processing times remain insanely long.
  • COA, EACC, s224c, and title processing now take up to a month each, adding up to four months of delays.
  • Active engagement with council is critical – developers must push the process along.

The Good News

While these challenges persist, there are plenty of opportunities for well-prepared developers who can adapt to the changing landscape.

• Stability and Predictability in Pricing – The era of sharp price declines appears to be over. Developers who price their product well and focus on quality are still seeing solid demand.
• Lending Conditions Have Loosened – There’s good availability of development funding, with lenders actively looking to allocate capital. This means:
  • Better rates
  • More flexible terms
  • Higher leverage
  • In short, lenders may be willing to lend you more for cheaper.
• It’s a Good Time to Build – With many pipelines slowing down, there’s now surplus capacity in the construction sector. This benefits developers in two key ways:
  • Competitive pricing – With fewer projects in the pipeline, developers have stronger negotiating power.
  • Improved project efficiency – Managing sub-trades is easier, and developers are seeing better program delivery. Contractors are now completing projects on time or even early—a stark contrast to a few years ago when liquidated damages were the industry norm.

 Final Thoughts

Property development is never without its challenges, but developers who are strategic, adaptable, and proactive will continue to find success.

At ASAP Finance, we understand the evolving landscape and provide flexible funding solutions that help developers secure opportunities, navigate market challenges, and keep their projects moving forward.

📞 Contact us today to discuss how we can support your next development – 0800 272 756.