ABSTRACT
The majority of property developments can only be undertaken with the assistance of funding from an external third party source as a developer does not normally have 100% of the cash required for all development costs incurred during the lifetime of the development. This third party is normally a lender/financier, institution or syndicate which has funds to lend in return for an additional interest cost on the capital plus administration costs. This loan fills the financial difference between the developer’s available equity, or cash equivalent, and the total cost of the project including all associated expenses over the development period until completion.
There are two forms of finance that are required for property development:
short-term finance to pay for the initial development costs (i.e. purchase of land, construction costs, professional fees and promotion costs), and
long-term finance to enable developers to repay their short-term borrowing/loan and either realise their profit via selling or retain the property as an investment with tenants.
Either option depends on the developer’s motivation, their financial situation and the prevailing market conditions. In this chapter we examine the different sources of finance available to developers and illustrate the methods of financing a development scheme by using worked examples.
