1. Acceptable Purpose Requirements
To be considered under these guidelines, credit applications must meet both of the following requirements:
- The property development involves commercial or residential property development; and
- The development property being financed is to be sold or refinanced when it is completed, to repay the debt
To complete the application, the following information is to be obtained:
- Development and building approvals (plans and specifications)
- Building contracts
- Feasibility – Marketing Plan
- Builders / Developers resume
- Asset and Liability statements
- Details of Borrowing entity
- Drawdown schedule
- Alternative exit options in the event of default i.e.:
- Independent cash flows sufficient to service debts
- Capacity to refinance, and
- Capacity to sell other assets to retire debt
Credit applications not meeting these guidelines can still be considered.
Property development includes land development, for example putting in electricity and roads, or subdivision.
Funding is generally GST exclusive.
2. Income / Capacity Requirements
We need to establish at the outset that you can pay at least 12 months interest on the amount borrowed from alternative sources (excluding development rental income). This is in the event of delay in leasing and/or sale of the completed development.
3. Acceptable Repayments Requirements
The Bank’s preferred loan term is a maximum of 24 months
However, at the Bank’s discretion, the maximum loan term may be the longer of 3 years from the date of:
- the credit approval, or
- the initial facility drawdown (provided this drawdown occurs within 3 months of approval)
Council and other bodies set requirements as conditions for development and/or building approvals. The Bank’s repayment terms must be consistent with these. For example, completion dates, terms of sale contracts and agreements to lease.
The debt must be repaid within 12 month of the completion date of the project. Repayment can be through selling the development property or refinancing.
Pre-sale conditions apply to these credit applications and are dependent on the type of development, e.g. Residential Units/Sub-developments. To be an eligible presale, all of the following must be met:
- The sale must be at ‘arms length’ to a credit worthy purchaser
- A non-refundable deposit of at least 10% must be held
- The contract for Sale must include a ‘Sunset Clause’ requiring settlement to take place by a particular date (usually 30 days after practical completion)
- Any one entity or individual may not have 3 or more units which represents greater than 20% of the total number of units; and/or 10% or more of the total sales value
4. Security & Loan Documentation Requirements
The Bank must be satisfied with the security being provided. This is normally:
- A registered mortgage over the property being developed, and
- Other property.
- a registered company charge over the business assets where applicable, and
- guarantees from all interested parties
The credit application must be fully secured on the Bank’s normal Loan to Value Ratios.
Note: See Loan to Value Ratio (LVR) heading below and refer to Section 6 for more information on LVR.
The borrower’s spending commitment
The borrower must fully spend its equity and/or other external funding on the project before starting to draw down on the Bank’s credit facilities. This includes progress payments and interest capitalisation. The Bank controls payment of all progress payments including borrower spending.
The borrower must meet any cost overruns. This could be from their own funds, or they may need another loan.
Loan to Value Ratio – Commercial Property
For transactions greater than $250,000, the Security Lending Margin/Loan to Value Ratio is the lesser of:
- 65% of an ‘As if Complete’ Valuation where full recourse to the client or sponsor is not available; or
- 70% of an ‘As if Complete’ Valuation where full recourse to the client or sponsor is available
- 80% of the total development – hard and soft costs (including land costs and capitalized interest, contingency etc)
Where other security is provided the LVR applicable to the asset type will be used.
Note: Full recourse is where the Bank is able to seek redress from the borrower or project sponsor in the event that the sale of the security does not clear the debt.