Tag: Finance

Property Development Finance in NZ: How It Works

Property development can be a powerful way to create value in the New Zealand property market, but it is fundamentally different from traditional property investment. Rather than relying on long-term market growth, development involves actively improving land or buildings, creating value through construction or subdivision, with the intention of generating profit at completion. Property development is often considered a sort-term investment strategy compared with traditional property investment which is a long-term game.

Before committing to a project, one of the most important questions to understand is: how does property development finance work? Unlike a standard residential mortgage, development finance is structured around feasibilities, risk management, staged funding, and clearly defined exit strategies.

What Is Property Development?

Property development refers to purchasing land, or an existing property, to increase its value with the intention of selling the completed project for a profit. The nature of the development – either construction or subdivision – depends on the nature of the site. Unlike property investment, which takes a more passive approach in following market growth, development involves actively finding ways to create value.

What Counts as Property Development?

In the New Zealand context, property development typically includes:

Renovations or flips
Constructing new dwellings
Subdividing land into multiple titles
Replacing an existing dwelling with higher-density housing (such as townhouses or apartments)
Converting or redeveloping commercial buildings
Delivering mixed-use projects

How Development is Different from Property Investment

Property investment typically involves purchasing an existing property to generate rental income – the focus here is on yield and cashflow. After holding the asset for an extended period, subsequent (but often unrealised) profit is also generated from long-term capital gains based on market movements.

Property development is a more active approach to value creation. It requires capital, a feasibility analysis, consultant and contractor coordination, as well as the ability to balance construction and market risks within defined timeframes. Returns are not simply based on the market. In fact, pricing stability is often favourable as it often means less fluctuation in feasibility assumptions. With the exception of a falling market, liquidity and sales activity can be more important than price growth. Disciplined execution, tight cost control, and a sound exit strategy are key to completing a successful property development project. Making this possible is a well-structured development finance.

How Does Property Development Finance Work?

Unlike a standard home loan, development finance is structured around risk, project timelines, and feasibility. Lenders make assessments holistically, examining the whole development, which includes feasibility assumptions (both as costs and end values), developer experience, consultant and contractor experience, and exit strategy strength. Funding is centred around a mix of equity and layered debt known as the capital stack.

1. The Capital Stack

Developer equity refers to the capital you contribute to the project, whether as land value or cash. Most lenders require a meaningful equity position to absorb risk and demonstrate commitment.
Senior debt is the primary loan (first mortgage) facility used to fund land acquisition and construction. It is typically advanced as a percentage of total project cost and/or projected end value.
Mezzanine finance (or subordinated debt/second mortgages) is a loan that sits behind the senior first ranking mortgage. It is often used to reduce the equity requirement of the developer making their equity go further. The increased leverage can also increase the return on equity metrics; however it also increases funding costs and overall risk associated with the project.

2. Feasibility and Funding Assessment

Before approving a facility, lenders assess the project’s financial viability in detail. This is where many first-time developers underestimate the scrutiny involved. Key metrics typically include:

Total Development Cost (TDC): land, construction, professional fees, interest, and contingencies
Gross Realisation Value (GRV): the projected end sale value of the completed project
Loan-to-Cost (LTC) or Loan-to-GRV ratios: how much leverage is being applied

3. Land Funding vs Construction Funding

Development finance is often structured in two parts. The first is land funding, which supports site acquisition. Depending on timing and structure, this may later roll into the construction facility. The second is construction funding, which covers build costs and associated project expenses. This is usually approved based on completed designs, fixed-price build contracts, and confirmed feasibility. Some projects may require presales before construction funding is fully advanced, although no presale development finance is also viable, depending on the lender and project.

4. Progress Drawdowns During Construction

Unlike residential mortgages, development finance is not advanced as a lump sum. Construction funds are released in stages, aligned to completed works. Before each drawdown, lenders typically require:

A quantity surveyor (QS) report
Confirmation of milestone completion
Updated cost-to-complete assessment

5. Exit Strategy

Every development loan is approved with a defined exit in mind.

Common exit strategies include:

Selling completed dwellings and repaying the facility
Refinancing into long-term investment lending
Staged sell-down of a multi-unit project

Lenders assess the strength and realism of the exit plan as part of approval. Without a clear and achievable exit strategy, even a profitable project on paper may struggle to secure funding.

What Lenders Look for in Development Finance Applications

Development finance approval is driven by risk assessment. Lenders evaluate not just the project, but the developer’s ability to execute and exit successfully.

At ASAP Finance, we structure applications around the factors that materially influence credit decisions.

Experience and Delivery Capability

Track record matters. Lenders assess prior project experience, financial history, and the strength of the wider team – including builders and consultants. For newer developers, conservative project scope and strong professional support become more important.

Equity and Financial Position

A meaningful equity contribution demonstrates commitment and absorbs first-loss risk. Lenders review the source of funds, liquidity, and overall financial capacity to manage unexpected delays or cost increases.

Feasibility Strength

Projected sale values, build costs, timelines, and contingency allowances must be commercially realistic. Lenders will stress-test assumptions to ensure the project remains viable under pressure.

Exit Clarity

Every facility is approved with repayment in mind. Whether through sell-down or refinance, the exit strategy must be credible and supported by market evidence.

Structuring for Property Development Success with ASAP Finance

Development finance is ultimately about aligning risk, structure, and execution. The more disciplined the preparation, the stronger the funding outcome.

The most successful property development projects in New Zealand use an appropriate structure. From acquisition through to exit, every stage of a project carries financial implications. Central to managing risk and protecting margins is close coordination and a sound understanding of how development finance enables value creation.

At ASAP Finance, we work with developers to structure development and construction loans that support projects from site purchase through to completion. Our focus is on creating a financially sound framework aligned with your goals. If you’re considering a development or want clarity around how development finance works for your next project, get in touch with the team at ASAP Finance to discuss your plans.

Progress Payments: What Lenders Look for when processing drawdown Requests

When it comes to property development and construction finance, progress payments form the backbone of how funds are advanced throughout a project. For lenders like ASAP Finance, this is one of the most critical aspects of loan management – ensuring funds are released only as value is created on site, and almost always on a cost-to-complete basis.

The Basics of Progress Payments

A progress payment or “drawdown” (also known as a DD) refers to the staged release of loan funds throughout the construction or subdivision process. Rather than advancing the entire facility upfront, funds are released progressively as the project reaches agreed milestones. Note, payments are almost always made on a cost-to-complete basis (which we’ve covered in a previous blog How Cost-to-Complete Funding Works in Development ).

This structure ensures borrower equity is applied first to the project and that the lender’s loan facility is sufficient to complete the project.

What Lenders Look for in Drawdown Requests

Every drawdown request is assessed on a simple principle: “after paying the DD request, is the amount being retained by the lender sufficient to complete the project?”.

While there are a range of other considerations when making a payment, the lenders final decision will eventually tie back to that fundamental question.

Consideration for Lenders

Before approving a drawdown, prudent lenders will typically consider the following. In most cases, an independent Quantity Surveyor (QS) report will also be required, which addresses many of these points in greater detail.

Budget review: the lender will review the full project budget to identify any areas where cost increases are known or anticipated. The aim is to ensure that after the requested payment is made, the lender remains sufficient funds on a cost-to-complete basis. This includes confirming appropriate allocation of contingency sums and factoring in forward-looking costs that may not have been fully identified early in the project.
Evidence of progress: the lender may go to site or request photos confirming works done.
Invoices from the main contractor and relevant subcontractors: for the raw build, some lenders may not require individual subtrade invoices and instead pay per the agreed milestones (however a QS will almost certainly ask for sub trade invoice and confirmation that all previous invoices have been paid)
Program: lenders will assess whether the project remains on track against the approved program. Delays often translate directly into increased costs, this is because capitalised interest and fees form part of the overall funding facility and budget. If the revised completion date extends beyond the original term of the loan, the lender may require evidence that the borrower can cover any resulting shortfall, which may include an additional equity injection.
Council inspection signoffs: Evidence that key council inspections have been passed, such as drainage, pre-line, or pre-roof stages. These provide independent verification that works completed on site meet the required building standards and align with the approved plans.
Cost over-runs: If a drawdown request exceeds the value of the completed work, the lender may only approve a partial payment. This protects the lender from over-exposure if delays, defects, or cost overruns occur later in the build.

Site visits

As mentioned, expect your lender to undertake a site visit. Site inspections are an important step, providing a real-world check against what’s claimed on paper. They also give the lender valuable insight into the quality of workmanship and general site activity. A well-organised, well-resourced and active site signals good project management, while disorganisation or inactivity can indicate emerging risks, unpaid bills or potential delays.

Council Inspections

Council inspections play a critical role in the progress payment process, serving as an independent safeguard for both lender and borrower. Each passed inspection verifies that the works completed meet building code requirements.

In a residential build, inspections typically cover key stages such as foundations, framing, and pre-line etc. while subdivision elements focus on civil works such as earthworks, utilities connections, retaining, drainage and driveway (including vehicle crossing) sign offs.

These inspections provide independent assurance that all works are compliant and completed in line with approved plans. They also help confirm there are no outstanding or remedial items that could undermine the project’s cost-to-complete position or the security of the loan.

Greenfield Land Subdivisions

Green field subdivisions carry their own complexities. Unlike infill projects, where subdivision works are relatively minor and progress can be tracked through defined structural stages, greenfield projects centre on extensive civil and infrastructure works.

Because of this, milestone-based drawdown structures are often impractical. Lenders instead rely on engineering certificates and supporting invoices to verify progress and authorise drawdowns. Given the scale and variability of such works however, QS reporting is almost always required to maintain oversight and cost control.

ASAP’s Milestone-Based Approach

Unlike traditional banks, ASAP Finance does not require QS reports to fund most projects. Instead, we take a pragmatic, milestone-based approach that streamlines the process without compromising oversight.

Our progress payment schedule is typically structured around clear, definable stages such as foundation, framing, roof on, lock-up, interior completion and so on. Each milestone would correspond to a known percentage of total build cost, making it easier for developers and builders to forecast cashflow and align payments with real progress.

By removing the QS requirement, projects move faster, incur fewer third-party costs, all while maintaining robust checks and balances through council inspection reports and site verification.

Why Lenders Take It Seriously

A disciplined drawdown process is about more than just compliance – it’s about protecting project viability. By linking payments directly to verified progress and the project’s broader cost-to-complete position, developers maintain stronger control over cashflow, lenders safeguard their exposure, and projects stay on schedule.

ASAP Finance’s model strikes the right balance between efficiency and oversight, ensuring funds are advanced promptly while maintaining the integrity and financial stability of the project.

Conclusion

At ASAP Finance, we view progress payments as prudent management, not an administrative step. Each drawdown is carefully assessed to ensure the project remains in a full cost-to-complete position – protecting momentum, minimising risk, and keeping developments moving forward with confidence.

New Builds are Gaining Ground with Property Investors Again

New builds are becoming an increasingly attractive option for property investors in New Zealand. With lower deposit requirements, exemptions from Reserve Bank restrictions, and strong demand for modern housing, it’s no surprise they’re gaining momentum again.

At ASAP Finance, as a specialist development lender, we’ve seen a surge in property development funding requests for new projects as both developers and investors move to take advantage of the current landscape. This article explores why new builds are getting attention and how you can leverage the trend.

Why Investors Are Choosing New Builds

The main reason investors are choosing new builds is the ease of securing funding. Lower deposit requirements and exemptions from LVR and DTI restrictions make them particularly attractive.

Under current Reserve Bank of New Zealand (RBNZ) loan-to-value ratio (LVR) rules, investors need a 35% deposit for existing properties. New builds, however, benefit from a carve-out in the BS19 framework which exempts them from both LVR and proposed debt-to-income (DTI) limits. In practice, this means there are no formal restrictions on leverage for new builds. Instead, banks apply their own policies – typically requiring a 10–20% deposit and capping lending at 80–90% LVR.

This carve-out specifically covers construction lending. It applies when a borrower is building a new home, purchasing a newly built home from a developer within six months of completion (often referred to as buying “off the plans”), or purchasing through the Government’s KiwiBuild programme. These situations fall within the exemption, giving lenders greater flexibility and investors more accessible leverage.

Furthermore, banks often provide more favourable incentives for new builds as well. These can include discounted rates (ANZ currently offers 0.60% off fixed and 1.25% off floating under their blueprint to build product), cashbacks of up to 1% from major lenders (ANZ, ASB etc), and green build incentives, including extra discounts and products for energy-efficient homes.

While the era of 1.99% mortgages is gone, new builds continue to benefit from competitive pricing, with floating rates for eligible borrowers around 5% depending on profile.

Where Are the Opportunities?

For property developers focused on the investor market, infill developments , particularly townhouses and terraces in established centres like Auckland, Hamilton, and Christchurch – remain the most in-demand product. Investors are looking for well-located, low-maintenance properties that appeal to tenants and deliver steady yields. This means product selection and design need to be geared towards what investors value most. Key considerations include:

Transport connectivity – close to arterial routes, motorways, and public transport for commuting tenants
Tenant appeal – proximity to employment hubs, education providers, and retail amenities
Design efficiency – practical layouts, low-maintenance materials, and compliance with Healthy Homes standards
Rental return – balancing build cost against achievable rents in the area
Market absorption – ensuring supply levels of similar stock are not oversaturating the suburb
Investor affordability – price points that fit within common investor LVR/deposit requirements
Exit strategy – stock that can be sold down easily to multiple smaller investors, rather than requiring one large purchaser

Greenfield developments also present opportunities, especially in high-growth corridors like Rolleston, Pokeno, and Silverdale. However, developers need to carefully assess the target audience. Many greenfield subdivisions are driven by owner-occupier demand, which can leave investor stock harder to shift. Identifying which subdivisions have strong rental demand and investor appetite is critical to project viability.

ASAP Finance provides tailored development finance solutions for both infill developments (townhouses, terraces, and multi-unit projects in established urban areas) and greenfield subdivisions (large-scale residential projects in growth corridors). Our solutions include no-pre-sale construction funding, no valuations required, milestone-based drawdowns (no QS appointment needed), GST facilities, and serviced or capitalised interest options.

What to Watch Out For

New builds are not always the best fit for every investor.

Limit scope for value-add – new builds offer limited potential for adding value through renovations, subdivision, or development. Most of the upside is already captured by the original developer, leaving future capital gains tied largely to broader market growth.
Risk of oversupply – Large-scale property developments can flood local rental markets, leading to longer vacancy periods and delayed rental income.
Over-capitalisation – Not every new build works as a rental. Higher-spec homes often deliver poor yields if the additional cost (or higher purchase price for the home) cannot be recovered through higher rents, leaving investors exposed to weaker cash flow.

In all situations, investors should focus on yield, location, and tenant demand rather than glossy brochures or IM’s.

Are New Builds a Good Investment?

They can be – but it depends on your strategy. If your goal is long-term passive returns, low maintenance, and taking advantage of favourable bank lending incentives, new builds are ideal. If your strategy is value-add, renovation-driven, or short-term flipping, then older properties may be more suitable.

Final Thoughts

The market has shifted. With lower deposit requirements, exemptions from LVR/DTI limits, and better bank lending incentives, new builds have once again moved from a niche play to a mainstream strategy for investors.

If you’re a developer looking to meet growing demand ASAP Finance provides flexible lending criteria with no pre-sales, no QS, and no registered valuations required.

Ready to take the next step?

Contact the team at ASAP Finance for fast, flexible funding tailored to new build projects.