Welcome to our channel. Last week, we shared the four main challenges you may face during property development, which told us that developing properties is not an easy job. Today, we will introduce a piece of great news for people who plan to start a small property development project.

If you want to build four or fewer new dwellings, and your total project budget excluding land cost is under 2 million, you will find ANZ’s new policy fantastic for you.

Great news for small property development project

Timeline:
1. The benefits that the new policy can bring - 01:08
2. The criteria for the new policy - 04:15
3. Who will be benefited the most from the policy - 06:50

What benefits the new policy can bring to applicants for small property development loans?

Fast Turnaround: 

Before the new policy, when you apply for a property development loan in ANZ, if you have two or more dwellings to build, or your project’s cost is over 1.2 million, your application will be sent to ANZ’S commercial team for assessment. This means your application may take ages to get an outcome because there are tons of projects are under assessment. Especially now, many people are interested in property developments, the turnaround is even worse

The new policy allows small-scale development projects will be separated from larger-scale development projects, speeding up the approval process. Large development projects continue to be reviewed by the commercial team, while small development projects (if fit the criteria) can be transferred to the retail team. As a result, the turnaround time will be much quicker for small development projects and may be completed in a matter of a couple of weeks.

Cheaper finance cost:

In the past, the borrowers of small property development projects normally pay the commercial interest rate approx. 4% and they also need to pay 1% as application fee, and 1% as line fee.

Under the new policy, if you meet the criteria, there will no fees and you will also enjoy a much lower interest rate. You probably heard ANZ has a very attractive loan product called ‘Blueprint to build’, which is designed for purchasing or building a new house. Under the new policy, ANZ has extended it to property development purposes as well.

  They offer a very special floating interest rate of is currently 1.83%, and there are no fees required. Therefore, the finance cost of small property development projects can be reduced significantly.

What are the criteria for the new policy?

1. The total cost excluding the land cost does not exceed 2 million.
2. The number of new dwellings is four or less
3. Have fixed-price contract
4. The LVR is not more than 60% of the finish value

The total construction cost includes contingency, which is the money set aside (normally is 10% to 15% of the total budget) to cover unexpected costs during the construction process. This money is on reserve and not allocated to one area of the work, and simply ‘insurance' against other costs.

For example, if you have four new dwellings, the worth of each is $1,000,000, totally the four buildings value $4,000,000. You will be fine if your loan size does not exceed $2,400,000. But if you intend to sell some of the properties, the GST will be taken out from the dwelling value. Then your loan size will be less than $2,400,000.

 

 

Who will be benefited the most from this new policy?

The new policy offers many benefits, but because of the criteria, not everyone is applicable. Let's take a look at who will get the most benefit from this new policy?

People who have three or fewer new dwellings to build.

The policy requires the applicant to have no more than four construction properties, and the construction cost excluding the land cost should not exceed $2,000,000.

Although the development of four dwellings is allowed in the new policy, if you need to build four dwellings, you may find that your budget can easily exceed $2m.

Let’s say if you plan to build four dwellings, and the total budget is $2,000,000. First of all, the subdivision cost will cost $500,000, and you only have $1,500,000 remaining to allocate on construction. Then the construction cost of each dwelling should not exceed $375,000. Based on the current construction cost of approximately $2,800 per square meter, each of your dwellings will be around 130 square meters on average. The area of each house may be too small depending on the design.

As a result, if you plan to build four dwellings, it will be better to allocate the budget carefully, or you may not meet the criteria due to the budget overruns. For people who have three or fewer new dwellings to build, the construction cost is easier to be controlled within 2 million. So, this policy can be more applicable to them. 

People who have high household incomes.

Suppose you or your family have full-time jobs. In that case, your salary income, the existing rental income, and the future rental income from the new dwellings (if you don’t plan to sell the properties) are your stable income, which is your repayment capability in banks' eyes.

If your income can afford the repayment, the new policy will be fantastic for you.

But if your income is relatively low while you want to apply for a large loan amount, your application will have to be assessed by the commercial team. and you may need to pre-sell the new dwellings before the final approval.

People who can a fixed-price contract.

Because the construction cost is currently rising rapidly, the actual cost can easily exceed developers’ budget. Nobody knows how high the construction costs will go during your project. It is hard for builders to estimate the building budget and offer a fixed-price contract. If the fixed price is set too low and the construction costs rise fast during the project period, the builder may make a loss.

It is not easy to get a fixed-price contract because many builders are not willing to take this risk of cost rising. But if you can get a fixed-price contract, you will find the new policy very suitable for you.

Other questions you may ask

Will it affect my loan application if I want to build houses and sell them immediately?

You can sell the new properties. But if you plan to build a house for sale, ANZ will not count the rental income of the house to be sold into your repayment capability. So, if you plan to sell the new dwellings, it will be better to confirm your repayment ability before applying for the development loan.

Do I need a QS to calculate the costs to apply for this loan?

Yes, you still need to hire a QS to do the initial cost accounting, follow up and update the progress of your house construction project, confirm your expenditure at each step of the construction so as to help the bank reduce risks.

Here is the introduction of the ANZ new policy for small property development projects. What do you think? If you are interested in it, or you or your friends are interested in applying under this policy, please feel free to contact us. We will offer you a professional loan consultation to help you achieve your goal.

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The four challenges in property development

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.