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Does a construction loan include land?

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Written by David Lovato – CPC Lending Solutions

February 2025

When planning to build a new home, a common question asked by borrowers is “Does a construction loan include land?”. Understanding this and how a construction loan works can impact your financial strategy.

A construction loan is a type of short-term financing designed to cover the cost of building a new dwelling or substantially renovating an existing one. Unlike a conventional mortgage, which provides a lump sum upfront for the purchase of an existing property, a construction loan is paid out in stages as your building project progresses. This is also known as ‘drawing down’ your funds.

One of the key differences between a construction loan and a regular mortgage is that you will only pay interest on the amount drawn down in your construction loan. This can help keep your monthly repayments lower.

It is a common assumption in property development financing that construction loans automatically include the cost of the land, too.

Does a construction loan cover land?

Whether or not a construction loan covers land depends on the lender.

Some lenders allow borrowers to bundle the purchase of land with the construction of the dwelling into one home loan. This single loan covers both land acquisition and construction. The loan will be disbursed in stages, with the first release of funds used to purchase the land. Thereafter, the loan functions as a construction loan, paying out in stages as your build progresses.

But, other lenders do not offer a bundled loan, instead allowing separate financing. This might require you to take out a land loan first and then apply for a construction loan once the building plans have been finalised.

From a lender’s perspective, these two options cover a range of scenarios, including developers or borrowers who already own the land and now just require financing to build the dwelling. 

Additionally, for landowners who have low or no debt on their land, some lenders may offer an equity release option. This allows the landowner to access the equity in their land as part of the construction loan, providing additional funds for the project or even for securing their next development. 

In certain scenarios, the lender may provide a cash-out component at the start of construction, allowing developers to secure their next project while the current one is being built. This will depend on maintaining the overall construction maximum loan-to-value ratio (LVR), but it can be particularly helpful for developers managing overlapping projects.

However, this process varies from lender to lender, so it’s recommended you work with an experienced finance broker who can help you find a loan that suits your current financial situation and long-term goals. 

At CPC, we understand that every project is unique. Our approach to property development financing is to work closely with borrowers to understand their specific circumstances and tailor a financing solution that meets their individual needs. We consider the project as a whole, including the land acquisition if necessary, to find a financing solution that works for you.

Key factors that determine construction loan structure

Lenders will assess several criteria when deciding whether a construction loan can include the land purchase. These may include:

  • LVR: This represents the percentage of the total project cost (including land) covered by the loan amount. A lower LVR means you will need a larger deposit.
  • Borrower’s deposit: If you want to include the purchase of the land in your construction loan, you may need a larger deposit. 
  • Construction timeline: Some lenders require construction to commence within a set period after the land purchase. This ensures that the land is used as intended and that the project progresses as stated in the plans.
  • Land zoning and permits: Lenders often require approved building plans and necessary permits before approving land financing to reduce the risk of project delays or complications.

Construction loan versus land loan: What’s the difference?

If a bundled loan is not an option for you, or there are other reasons you want to separate the two, it is helpful to know what the differences are between a construction and land loan.

Land loan: This is typically used to purchase vacant land without immediate plans for construction. This type of loan often has shorter terms and higher interest rates than construction loans

Construction loan: This will finance the building of the dwelling and is drawn down in stages. Borrowers will likely be required to provide approved plans to the lender.

How CPC helps borrowers finance land and construction

At CPC Lending Solutions, we understand that every borrower’s situation is different. Whether you need a construction loan for land and building, a separate land loan, or alternative financing options, we can help find a solution that aligns with your property development goals.

Our expertise is in property development financing, which allows us to find flexible and tailored loans for your project’s needs. Working with a specialised lender like CPC Lending Solutions means you have access to more knowledge of the industry as well as personalised service. 

If you’re exploring how to finance land and construction, our team at CPC can guide you through the process. Contact CPC Lending Solutions today to discuss your construction and land financing needs.

Lender in focus: Dorado

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Written by David Lovato – CPC Lending Solutions

January 2025

When it comes to property development, finding a lender that can keep pace with the unique demands of each project is crucial. Finding one with a deep understanding of the industry is just as important. 

That’s why we started this series: to highlight lenders who offer innovative loan solutions for property developers

Dorado – a lender with a strong reputation for flexibility, speed and creativity – has established itself as a standout for developers, funding over 256 deals across Australia over the past 15 years. 

What sets them apart?

Dorado’s key difference is its ability to provide tailored financing solutions that go beyond the usual metrics like loan-to-value ratios. Unlike traditional lenders who rely on strict lending criteria, Dorado takes a more holistic view. Each project is assessed based on its unique needs and market conditions, allowing Dorado to offer adaptable loan solutions that address specific challenges.

A strong focus on property development

Dorado has a large and growing interest in financing property developments throughout Australia. They actively support a broad spectrum of projects, including residential, mixed-use, commercial and industrial properties. 

Their funding approach is focused on quality and viability. Dorado looks for developments with a clear, achievable path to completion, ensuring they back projects that deliver measurable results. By offering both first mortgage and subordinate finance solutions, Dorado provides developers with the capital they need to bring their visions to life.

Unique features and policies for property developers 

Dorado offers several unique features designed to benefit property developers. Their funding options include solutions such as first mortgages, mezzanine debt, preference equity and direct investments. This variety allows them to customise solutions to suit specific project requirements, providing developers with the financial agility they need.

Alongside these funding options, Dorado has streamlined its processes to ensure applications are quickly assessed, which is a major benefit for developers where timing can often be the difference between success and a missed opportunity.

Why developers choose Dorado

Three key reasons stand out:

First, Dorado offers invaluable industry expertise. Their team has extensive experience in property development financing and an understanding of the industry and market. This translates into practical insights and guidance that developers can use throughout their projects.

Second, Dorado provides personalised support and prioritises building strong client relationships. They take the time to truly understand a developer’s needs and offer tailored support. By personalising the experience, Dorado becomes a partner in the process rather than just a lender.

Finally, Dorado puts transparency and communication at the centre of its work. Its emphasis on consistent, long-term partnerships means developers have come to rely on Dorado as a lender they can trust.

Dorado is a lender that meets the needs of many developers, but they might not be the perfect fit for everyone. That’s where CPC Lending Solutions comes in. We work with lenders like Dorado to connect you with the best financing solution for your project. Whether you’re tackling a residential build or a large-scale mixed-use development, we’re here to help.

Contact us at [email protected] or fill in this form to find out more. 

 

 

Energy efficiency: The growing gap between old and new investment properties

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Written by David Lovato – CPC Lending Solutions

December 2024

The Australian housing market has seen a growing divergence in the value of new builds compared to older homes. This trend has been influenced by factors like energy efficiency, maintenance costs and changing buyer preferences.

Energy efficiency and minimum standards

Under the Nationwide House Energy Rating Scheme (NatHERS), the National Construction Code (NCC) introduced a minimum 6-star rating (out of 10) for new builds from 2010 and adjusted the mandate recently to a minimum of seven stars. 

These standards ensure that newly built homes automatically include superior insulation, efficient heating and cooling systems, and measures to reduce dampness and mould and improve overall comfort.

In its December 2024 report “Amped up: How energy resilient are Australian homes?”, CoreLogic noted that a typical home built in 2010 or later achieves a median star rating of 5.9 out of 10, compared to just 2.8 stars for homes built earlier.

This disparity places older homes at a disadvantage, particularly for environmentally conscious buyers or renters.

Growing buyer and investor demand for energy efficiency

Savvy buyers, both owner-occupiers and investors, are increasingly willing to pay a “green premium” for homes with higher energy efficiency. A Domain report from May 2024 found that energy-efficient houses sold for 14.5% more, while efficient units fetched an 11.7% premium. In some areas, price differences were as high as 28%.

This willingness to pay more reflects a combination of long-term savings on running costs and the improved comfort offered by new builds.

Lender requirements

Lenders are increasingly factoring energy efficiency into their decisions, with many becoming reluctant to approve loans or provide coverage for homes with poor energy ratings.

Real Estate Institute of Australia director Jacob Caine told the Australian Financial Review, “We will see in the not-too-distant future almost mandatory requirements in lending from financial institutions for those properties that don’t meet minimum standards.”

He added that lenders may start adding clauses to contracts on home loans for older homes that agree to provide the finance only if upgrades are undertaken.

We are already seeing this trend, with the introduction of a federal government-led Clean Energy Finance Corporation fund which provides cheaper loans to homeowners wanting to make their homes more energy efficient. This mortgage option is currently available through Westpac and Bank Australia.

Government rebates and incentives

State governments are prioritising programs to upgrade existing housing stock. Financial incentives, such as rebates and grants, aim to help homeowners retrofit properties to meet modern efficiency standards. 

For example, the ACT’s Home Energy Support program provides up to $5,000 in rebates to help with the cost of installing energy-efficient products. New South Wales offers the Energy Savings Scheme providing financial incentives to install energy-efficient equipment and appliances. Victoria’s Energy Upgrades offers discounts on energy-efficient products when replacing old, outdated appliances. 

But, even with these programs, the cost of replacing or upgrading existing appliances or energy systems can add up, putting further upward pressure on existing home prices in comparison to new homes that come already fitted with energy-efficient systems. 

Other incentives

For apartment developers, incentives are already in place through embedded energy networks. Providers like Energy Australia offer “free infrastructure” (such as hot water plants and equipment) to developers in exchange for residents sourcing their electricity through the embedded network. This lowers construction costs while making new apartments more appealing to buyers.

Running costs 

To meet NatHERS requirements, new homes are often equipped with energy-efficient features including solar panels, water tanks and double-glazed windows. These help reduce running costs.

Domain’s May report found that:

  • Roof and ceiling insulation can save up to 45% on heating and cooling
  • Wall insulation can save around 15% on heating and cooling
  • Sealing gaps around windows and doors can save 5-15% on heating and cooling

In contrast, older homes often require costly upgrades to achieve similar savings, such as installing insulation, replacing appliances or retrofitting windows. Without these improvements, owners of older homes may face higher utility costs that can deter buyers or renters.

Cooking and appliances also contribute significantly to a home’s running costs. As the image below shows, an average NSW household uses 40% of its energy on cooking and appliances.

New homes are typically fitted with energy-efficient appliances that meet current performance standards, such as induction cooktops, LED lighting and high-rated refrigerators and washing machines. These energy-efficient appliances consume far less power than their outdated counterparts in older homes, saving the homeowner or tenant on their running costs. 

Future-proofing your investment

For investors, energy efficiency plays an important role in both capital appreciation and rental demand.

First, tenants are increasingly prioritising energy efficiency, with 72% of renters surveyed by PropTrack saying energy ratings help reduce their utility bills.

Second, in some locations like Victoria, landlords must already meet minimum energy standards for rental homes, and more regulations are under consultation. Retrofitting older homes to comply with these standards could be costly, further widening the price gap between new and existing homes.

Lenders’ interest rate discounts for energy-efficient homes and government incentives to upgrade older stock are clear signals that efficiency will play a central role in the market moving forward. For investors, newly built homes that meet NatHERS standards offer an opportunity to attract renters, save on running costs, and avoid costly retrofits.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.

 

NSW gets new Building Commissioner

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Written by David Lovato – CPC Lending Solutions

November 2024

The New South Wales Building Commission is now under new leadership with the appointment of James Sherrard as building commissioner, succeeding David Chandler, who retired in August.

Sherrard’s appointment comes after the Commission’s establishment in December 2023, which elevated the role from NSW Fair Trading to an independent authority focused on enforcing building standards.

The NSW Building Commission’s mandate is to lift construction quality across the state, reducing defects in new builds through robust oversight. Its creation followed high-profile incidents, such as the Opal and Mascot Towers, which exposed structural issues and inconsistent enforcement of building standards in NSW’s apartment sector.

Its key functions include: 

  • Managing disputes and complaints about building, renovation, trade or specialist trade work on residential and non-residential buildings
  • Inspections and compliance for building quality in residential construction
  • Licensing of tradespeople, design practitioners and certifiers
  • Policy development and reform of building laws in the state

Recent reforms to strengthen the building industry

Since its establishment, the NSW Building Commission has introduced several reforms aimed at raising standards and accountability in the construction industry. These reforms empower the Commission to take more decisive action in areas like inspection, licensing and product safety, all to safeguard consumers and improve construction quality across NSW.

Expanded inspection powers

One of the Commission’s significant changes is the authority to inspect properties under construction and mandate rectifications. Inspectors now have the power to enter any construction site, from apartment buildings to free-standing homes, to identify potential or existing defects.

The Commission can issue several orders, including:

  • Prohibition orders, blocking the issuance of occupation certificates or strata plan registrations
  • Stop work orders, halting a developer’s work if issues are identified
  • Building rectification orders, requiring defect remediation before work can continue

Anti-phoenixing measures

The Commission is also equipped with stronger anti-phoenixing powers, aimed at preventing developers from escaping financial obligations by dissolving and re-establishing companies. Under these new regulations, the Commission can reject, cancel or suspend licences for individuals involved in failed companies within the last 10 years.

Enhanced suspension powers

The Commission now has the authority to suspend certifiers, design practitioners and other key professionals if their ongoing work poses a serious risk, allowing for prompt intervention to safeguard public safety.

Strengthening building product safety

Starting in 2025, the Commission will introduce new requirements across the building product supply chain, impacting manufacturers, suppliers, importers and tradespeople. 

These duties include ensuring compliance and sharing essential product information within the supply chain. The Commission also has the authority to issue warnings, enforce recalls and ban non-compliant products as necessary.

Cladding remediation 

Finally, the Commission oversees Project Remediate, an initiative to replace flammable cladding on eligible apartment buildings, aiming to enhance safety through certified, fire-resistant materials.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.

 

Should I fix my new rate? How you can capitalise by refinancing in the current rate environment

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Written by David Lovato – CPC Lending Solutions

October 2024

As interest rates have risen sharply over the last two years, the share of non-performing commercial real estate (CRE) loans at banks has increased, according to the Reserve Bank of Australia (RBA).

While this uptick may cause some concern, it’s worth noting that these levels remain low by historical standards. In fact, according to the RBA, “There continues to be little evidence of financial stress among owners of Australian CRE.”

Even in this challenging interest rate environment, now is a prime time to consider refinancing your loans in anticipation of potential interest rate cuts next year.

Interest rates forecast

According to the big four banks, the Australian Securities Exchange (ASX) and many other economists, the RBA is likely to start cutting rates early next year. 

The global economic landscape is already trending downwards. Last month, the US Federal Reserve made its first interest rate cut. This followed several other big economies including the UK, Canada, China and Europe which have also begun their rate-cutting cycles.

And, because Australia typically follows a similar trend to these developed economies, it indicates we are likely nearing the end of the current cycle.

With rates set to ease and economists predicting cuts early next year, now is an ideal time to explore refinancing options. Waiting until the end of the year could leave you scrambling as the market slows during the holiday season, making it more difficult to explore loan options or secure approvals.

Fixed rates or not?

As you review your refinancing options, you’ll need to decide between a fixed-rate mortgage or a variable rate. Currently, some fixed rates are lower than variable rates, which may seem tempting. However, fixing your rate now could prevent you from benefiting when rates are cut further in 2025, as widely expected.

But, fixing rates now could lock you out of potential savings in the near future. If you fix your rate now and the RBA cuts rates multiple times in 2025 – as is expected – you could miss out on the lower payments that variable rates will offer next year.

Some borrowers have already seen potential savings with fixed rates, as some banks have begun lowering their rates (see table summarising lenders offering rates below 5.75%).

However, borrowers should keep in mind the longer-term benefits of not fixing rates.

For developers and investors, there’s a bigger picture. By choosing not to fix now, you’ll maintain the flexibility to adjust your strategy as rates continue to shift downwards, maximising your project’s profitability.

Private credit options

In the real estate sector, the private credit market is growing significantly. Private lenders who have matured over the last several years are actively looking for new sites and projects to finance. According to the RBA, as of July, around 11% of business lending and one-quarter of lending to small businesses was provided by non-bank lenders.

With traditional banks tightening their lending criteria, private lenders may fill that gap as an alternative source of funds for CRE.

Private lenders offer the flexibility and speed to capitalise on opportunities in a softening interest rate environment. Whether you are looking to refinance an existing project, purchase a new site or secure residual stock loans to buy time until rates fall, there are attractive options.

Now is the time to act

Whether you’re a borrower or an investor, now is the moment to explore your refinancing options. If you have an existing loan, refinancing could help you lock in lower interest rates and reduce your monthly repayments.

For developers, the current rate environment also presents an opportunity to invest in new projects. Market conditions are favourable for acquiring sites and starting developments, with the growing private credit market offering flexible and attractive funding options

Additionally, savvy developers can take advantage of residual stock loans, which offer temporary financial relief while planning their next move. These loans help bridge the gap until rates drop further, giving you more time to strategise.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.

 

Why an aggregator matters for your loan application

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Written by David Lovato – CPC Development Lending Solutions

September 2024

Your finance broker is only as good as the lenders they have access to. That’s why aggregators exist, to act as a bridge between your broker and a broad range of lenders. This, in turn, provides you with access to a diverse panel of lenders and their offerings.

What is an aggregator?

An aggregator is an important partner for brokers, as they connect them with a single access point to multiple lenders. Instead of dealing with each lender individually, brokers use an aggregator to explore a variety of loan products, compare rates and stay updated on lender policies.

This saves time in your loan application process and improves your broker’s ability to offer tailored loan solutions that suit your financial circumstances, needs and goals.

Why does a good aggregator make a difference?

When you’re looking for a loan, having a broker backed by a strong aggregator can make all the difference. Here’s why choosing the right one matters for your financial success. 

1. Increases options

With a broader pool of lenders, like the more than 60 offered by the Loan Market Group (LMG), one of Australia’s leading aggregators, you’re not limited to the products and rates offered by one or two lenders. 

As a result, your broker can find the most competitive rates and tailored loan structures that align with your financial requirements.

For example, as the image below shows, LMG offers access to residential and commercial loans from all these lenders. 

Plus, the variety includes both large and small lenders, as well as banks and non-bank lenders. This gives borrowers a much wider range of lenders with varying loan requirements, assessment times and loan types, making it more likely you’ll find the loan to suit your needs.  

An aggregator like LMG also includes options for finance for other needs, like car loans, business loans, or equipment finance. This means you can attend to all your loan services under one roof.

2. Streamlines the process

Submitting applications to several lenders would be very time-consuming and tedious. With the help of an aggregator, you and your broker can efficiently compare offerings from various lenders within a single system, saving you time and streamlining the entire application process.

3. Prioritises security

Cybersecurity is a big concern, particularly in the finance sector. A good aggregator like LMG will be committed to protecting your sensitive information with industry-leading security measures. For instance, at LMG their award-winning InfoSec strategy is built on three pillars:

  • Protecting data: Keeping both brokers’ and clients’ data secure
  • Raising awareness: Fostering a community that understands cybersecurity risks
  • Building trust: Instilling confidence in LMG’s platforms and security measures

As a borrower, the people with whom you share your sensitive information are a big consideration. So it is helpful to know that aggregators like LMG keep cybersecurity at the centre of their service. 

4. Updates regularly

When an aggregator focuses on great technology, their brokers and clients get to stay regularly updated on interest rate changes, new products and lender policies. 

LMG’s platform provides brokers with a continuous stream of real-time information. This means your broker stays informed and up-to-date, allowing you to make quick and accurate decisions, knowing all the options. 

5. Stays transparent and independent

One of the key benefits of working with a leading aggregator like LMG is its independence. Neither LMG nor CPC Lending Solutions are owned or controlled by any of the lenders on the LMG platform. This means we are not pressured to promote specific loan products and the recommendations we make are solely based on your best interests.

In contrast, going directly to a lender limits your options solely to that lender’s products, which may not be a good fit for your needs. With an aggregator, you are more assured of unbiased advice and a broader view of your options. 

 

Download the free 2024 CPC residential lending guide today. This guide will help you make an informed decision by outlining some of the key factors to consider when choosing your next home loan.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.

 

CPC Lending Solutions expands to meet growing demand

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Written by David Lovato – CPC Lending Solutions

August 2024

We are excited to announce some significant changes at CPC Lending Solutions. To better serve our clients and meet the increasing demand for our services, we’re expanding our team and adding a new focus area.

Residential lending in 2024

As we head into the latter half of the year, the residential lending market presents buyers with unique opportunities. While interest rates have been held steady for several months, the overall cost of living remains elevated, putting pressure on borrowers’ budgets.

Despite these challenges, the housing market continues to demonstrate resilience. Strong population growth, coupled with a shortage of supply in many areas, is driving demand for residential properties. This has led to increased competition among buyers and put upward pressure on home prices.

However, many borrowers are finding it difficult to access finance, whether for new or existing homes, due to high interest rates. 

These affordability challenges are also impacting developers. Reported presales during the pre-construction and construction stages of projects are at a high risk of defaults and delays at settlement, or not even settling at all.

That’s why we’ve identified a need for a broker focused on the off-the-plan residential market.  

What’s changing?

As part of our expansion, we’re rebranding to CPC Lending Solutions and welcoming Andrew Wallace, our new Residential Mortgage Specialist. Andrew brings with him a proven track record and a deep understanding of the residential market.

His primary focus will be managing all residential finance enquiries and providing tailored solutions for individuals and families looking for residential mortgages.

At CPC Lending Solutions we offer a wide range of residential mortgage solutions including refinancing, off-the-plan new sales, house and unit purchases and investment property loans.

We’re also addressing a real problem that exists for construction-stage lenders and developers: the settlement risk of off-the-plan pre-sales. Many of these pre-sales are at risk when it comes time to settle due to outdated pre-approvals, changes in buyers’ life circumstances or rising interest rates.

CPC Lending Solutions will assist developers and purchasers in the off-the-plan sales process. We will work with developers to streamline the finance process for purchasers. 

Combining our in-depth knowledge of development with a new focus on residential buyers, we can connect with your off-the-plan buyers to build rapport and assist them in their homeownership journey.

This allows us to identify any risks, secure them a residential loan and ensure they don’t default when given their notice to settle. 

By identifying and mitigating risks associated with pre-sales, we can help developers increase their chances of successful project completion.

Increased competition

As a buyer, not only will you face increased competition for your new property thanks to the current shortage of homes, but you’ll also find many lenders are vying for your business. This competition can work to your advantage, as lenders are more includes to offer attractive terms to secure your loan. But, navigating this process requires time and knowledge.

That’s why we’ve brought Andrew on board, to ensure you benefit from this competitive environment. We offer personalised advice and a good relationship with lenders that we can use to benefit you.

Why choose CPC Lending Solutions?

At CPC Lending Solutions we are in a unique position to offer both residential finance to buyers as well as continue our high-quality finance broking service for developers.

Our new focus on assisting developers with off-the-plan sales is a natural extension of our existing services. We will work closely with you and your buyers for off-the-plan sales. This will allow purchasers to access finance to buy your new builds. With our experience in this field, we can tailor solutions for buyers, including options like deposit bonds, so that buyers secure a property in a competitive market.

For buyers looking for finance for residential property, we have a dedicated team member with in-depth knowledge of the current property and lending environment. He will be able to offer advice, facilitate your application and guide you through the home purchasing process.

Our services are free to borrowers and our brokerage fees are fully disclosed within the loan documentation.

Learn more about our residential mortgage solutions here.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form

New to Residential Lending? Download CPC’s free Residential Lending Guide Now

NSW housing reforms: unlocking opportunities for property developers

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Written by David Lovato – CPC Development Lending Solutions

July 2024

The NSW government’s recent planning reforms, introduced in June 2024, are designed to provide greater housing choices for families needing additional space and for multi-generational households. 

These changes are expected to help retain young people in NSW who might otherwise leave due to housing shortages.

The reforms significantly expand the permissibility of dual occupancies and semi-detached dwellings, providing new opportunities for small developers to undertake profitable projects across the state.

Understanding the reforms

The reforms will: 

  • Expand permissibility: The new reforms permit development applications for dual occupancies (two homes on a single lot) and semi-detached dwellings in a broader range of R2 residential zones. This change affects 124 local government areas across NSW, providing a substantial increase in available development sites​. 
  • Streamline approvals: The reforms aim to streamline the development approval process by enabling more projects to qualify for complying development consent (CDC). This faster approval route bypasses the lengthy council approval process, reducing the time and costs associated with starting a new development.

Certain regions, such as the Hawkesbury, Blue Mountains, and Wollondilly, are excluded due to bushfire and flood risks. Bathurst is also excluded as it lacks suitable R2-zoned land.

Additionally, heritage-listed sites are protected, although developments in heritage conservation areas may proceed if they enhance the area’s heritage value.

Keep in mind that while the state government is driving these reforms, local councils remain the primary assessors of development applications. They are responsible for evaluating these applications based on local planning controls and community needs. 

Key steps for success

To maximise the benefits of these reforms, small developers should adopt a strategic approach. Here are some key steps:

1. Target DA-approved or quick approval sites:

Focus on sites that are either already DA-approved or can quickly gain approval through the CDC. The new reforms have unlocked many such potential sites, making it easier and faster to initiate projects.

2. Extend settlement terms

Purchase sites on extended settlement terms to allow them to be more shovel-ready before settlement. Alternatively, settle within standard timeframes and rent out the existing premises for 3-6 months, generating interim income while preparing for construction.

3. Use an effective builder-developer model:

Adopt a builder-developer model where the builder handles construction and the partner manages finance and planning. This clear division of roles ensures efficient project management and execution.

Then, conduct building works at cost, transferring builder profits to developer profits. This approach helps manage high management and labour costs, ensuring project profitability.

4. Take a single-lender approach 

Secure a bridging loan that transitions into a construction loan. This simplifies the funding process and saves time and money, providing financial stability throughout the project lifecycle.

How CPC can assist

At CPC Development Lending Solutions, we specialise in providing bespoke lending solutions tailored to the unique needs of small developers.

Here’s how we can help:

  • Feasibility studies: Before you purchase a site, we conduct comprehensive feasibility studies to ensure the project’s financial viability. This helps mitigate risks and ensures that the development numbers stack up before securing finance.
  • Bespoke financing solutions: We offer tailored financing options, including bridging loans and construction loans. Our solutions are designed to meet the specific needs of each project, providing flexible terms and competitive rates.
  • Expert guidance: Our team provides expert advice and support throughout the development process. From site acquisition to project completion, we ensure you have the financial backing needed to succeed.

Crowd Property Capital is a property development finance specialist. We help property developers overcome their funding challenges by sourcing loans for land, construction and residual stock. Contact us at [email protected] or fill in this form.

 

Building backlog with 40,000 homes in limbo as high costs and interest rates bite

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Written by David Lovato – CPC Development Lending Solutions

June 2024

The construction of nearly 40,000 homes across Australia has stalled, despite the projects all having the necessary building approvals in place, according to a recent KPMG report.

KPMG’s analysis found that, as of 31 December 2023, over 37,000 dwellings had been approved in Australia but construction had not commenced. This figure represents a 9% increase compared to the previous five-year average. 

This increase is alarming, particularly as Australia grapples with a deepening housing supply crisis, characterised by rising prices and rent.

To make matters worse, the backlog is most acute in high-density dwellings such as townhouses and apartments, which are crucial for delivering housing at scale.

KPMG urban economist Terry Rawnsley said that, in Sydney and Melbourne alone, these types of dwellings constitute approximately 80% of the nearly 18,000 halted projects. 

 “There is always a lag between housing being approved and construction commencing, but current estimates show an abnormal number of dwellings sitting in this category, suggesting other market factors are stalling the pipeline of new builds,” he said.  

Rawnsley noted that Sydney has been particularly hard hit with more than 11,000 projects approved but not yet commenced in the most recent quarter.

“With the pool of newly approved dwellings falling, one might expect the pool of not yet commenced dwellings to be falling too, but it remained steady,” he said. 

Meanwhile, Melbourne had  6,840 dwellings pending as of December, one of its highest figures over the past five years. 

Brisbane and the ACT also reported significant numbers of stalled projects, with:

  • Brisbane seeing an 8% increase over its previous five-year trend
  • The ACT nearly doubling the number of approved but unbuilt dwellings from 864 to 1,772.

Why the stall?

Several factors are contributing to the delay in projects breaking ground. 

Foremost among them are skyrocketing construction costs, even though building materials price growth has levelled off since the pandemic highs.

However, labour and borrowing costs are through the roof with higher interest rates and robust wage demands from trades inflating costs significantly.

Simultaneously, rising interest rates have squeezed potential buyers’ purchasing power, further complicating the market dynamics.

As a result, many projects designed pre-COVID are now financially unfeasible as the cost increases have outpaced potential revenues. This problem is particularly pronounced in areas like western Sydney, a major hub for new housing developments, where new apartment prices are more constrained.

This economic squeeze is prompting developers to either shelve projects indefinitely, creating what Rawnsley terms “zombie approvals,” or to shift focus towards more profitable luxury developments, reducing the number of units in favour of higher returns. 

Crowd Property Capital is a property development finance specialist. We help property developers overcome their funding challenges by sourcing loans for land, construction and residual stock. Contact us at [email protected] or fill in this form.

 

Can modular housing solve Australia’s housing crisis?

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Written by David Lovato – CPC Development Lending Solutions

May 2024

Australia’s soaring home prices and rental rates are increasingly placing housing out of reach for many. 

This crisis is being exacerbated by a growing population and a shortfall in housing supply, which the National Housing Supply and Affordability Council has recently forecast to continue widening in the coming years. 

One potential solution some experts including researchers at the University of South Australia (UNISA) and the University of Melbourne are increasingly championing is modular and prefabricated homes. They argue that this innovative construction approach could potentially transform the housing market by addressing the urgent demand for affordable, high-quality homes. 

Understanding Australia’s housing crisis

The root of Australia’s housing crisis lies in the simple economic principle of supply and demand. Despite the urgent need for more housing, construction rates have not kept pace with demand. 

For instance, building approval numbers in March were close to decade-lows, according to the Australian Bureau of Statistics.    

This shortfall has been attributed to various factors including high construction costs, regulatory barriers, and a shortage of skilled labour. 

Why modular homes could be the answer

Modular homes are constructed in a factory setting and then transported to the building site where they are assembled. This method offers several benefits that could help alleviate the housing crisis:

  • Speed of construction: Modular homes can be constructed much faster than traditional homes. Components are built simultaneously off-site while the foundation is prepared on-site, significantly reducing overall project timelines.
  • Cost-effectiveness: With controlled factory settings, modular construction reduces waste and can be more cost-effective. Bulk materials can be purchased at discounted rates, and the assembly-line process reduces labour costs.
  • Quality and sustainability: Factory settings allow for more controlled construction conditions, which can enhance the quality and durability of homes. Additionally, modular homes often incorporate energy-efficient designs and materials, supporting more sustainable living.
  • Flexibility and scalability: Modular buildings can be easily designed to meet diverse needs, from single-family homes to multi-storey apartment complexes, making them a versatile solution across various market segments.

Weather-independent construction

One of the lesser-discussed advantages of modular homes is their resistance to weather-related delays. 

Weather has been identified as one of the top causes of delays and subsequent cost increases in the building industry, affecting 45% of projects worldwide, according to UNISA. 

Modular construction largely circumvents this issue, as the majority of the building process occurs indoors. UNISA estimated the savings of this weather-independent construction to come in at approximately $40,000 on a build worth $6.4 million.

Financing challenges 

Despite their advantages, financing modular and prefab homes presents unique challenges.

Traditional lenders are often hesitant due to the unconventional nature of the construction method. 

Key issues include:

  • Funding release: Many lenders typically release funds for construction projects in stages, based on on-site progress. However, because a significant portion of a modular home’s construction is completed off-site, these regular progress checks don’t align with traditional funding models.
  • Security concerns: Lenders may also be concerned about the lack of physical collateral during the construction phase, as the property isn’t yet ‘on the land’ it will ultimately occupy.

Creative financing solutions

Fortunately, innovative solutions are emerging to bridge these financing gaps:

  • Amended payment terms: To align with the modular construction process, some lenders will agree to modify their payment terms. This can involve specific agreements to release funds based on different stages of off-site and on-site completion.
  • Using existing assets as security: Developers might use existing property as collateral to secure funding, providing lenders with the needed security to release funds earlier in the construction process.
  • Partnering with modular companies: Some developers and lenders are forming partnerships directly with modular construction companies. These partnerships can include pre-arranged financing agreements that accommodate the unique aspects of modular construction.
  • Specialised financial products: A few forward-thinking financial institutions have begun offering loan products specifically designed for modular construction. These products take into account the unique aspects of modular building, such as faster construction times and different risk profiles.

Engaging with lenders early

If you are considering a modular housing project, engaging with lenders early in the process is crucial. 

Discussing the modular construction model upfront will help lenders understand the process and, potentially, tailor their financial products to better meet your needs. 

Working with a specialist property development finance broker such as Crowd Property Capital can help you find the right lender open to more creative funding solutions.

Crowd Property Capital is a property development finance specialist. We help property developers overcome their funding challenges by sourcing loans for land, construction and residual stock. Contact us at [email protected] or fill in this form.