The funding fight

In this week’s instalment on property development, Tracey Cook looks at getting approval and finding finance.

WHEN it comes to progressing a development to construction phase, town-planning consultants and property development financiers are a developer’s best friends.

Whether it is the development of four apartments in Subiaco or an inner-city residential project of 100 units, there is a number of hoops that all developers have to jump through to ensure their projects get development and finance approval. 

According to Planning Institute of Australia (WA) president David Caddy, it is becoming more difficult to get development approvals.

Currently, development applications have to meet the requirements of the recently updated residential design codes, as well as WA Planning Commission and local government town planning schemes and policies.

Mr Caddy said many in the property industry were underestimating the State Government’s commitment to the new sustainability standards.

“The sustainability scorecard is going to have a huge impact and unless developers embrace the policies and work with the government they are not going to get approvals,” he said.

Community sentiment was the other major factor to take into account when trying to get a development project off the ground.

Community workshops have become an increasingly used tool to address community concerns, Mr Caddy said.

When it comes to getting the cash to fund a development project, the most active players on the local WA development market are Home Building Society, Suncorp, BankWest and Westpac Property – for projects over $40 million, syndicates with eastern states banks are required.

BankWest chief manager of property finance, Graham O’Neill, said the maximum loan-to-development cost ratio was set at 70 per cent, though depending on the project extended senior debt may be looked at.

“On occasion the bank would review beyond those levels, but a higher premium will be paid,” he said.

The 30 per cent in equity must be raised first and can be in the form of cash, ancillary security, a bank guarantee and mortgage security.

“Generally shares are not appropriate, the bank prefers hard security, like titles,” Mr O’Neill said.

As well as equity contributions, the bank looks for an appropriate level of unconditional pre-sales – usually a-round 110 per cent of the loan, project costings and quality of the counter parties.