Guide to Land Finance

How do Land Finance Work?

Land finance refers to the financing arrangements used to purchase land or property. This could include traditional mortgages, construction loans, or other types of financing arrangements. The specific terms and conditions of the financing arrangement will depend on factors such as the type of property, the location, the purpose of the purchase, and the creditworthiness of the borrower.

When obtaining land finance, it's important to carefully research and compare different financing options, including the interest rate, repayment terms, and any fees or charges. It's also important to consider your strategy for the land and make sure that the finance facility in place is suitable for your requirements.

Benefits of Land Finance

In some cases, land finance may be combined with construction financing to provide funding for both the purchase of the land and the construction of a building on the property. This can save the holding costs associated with owning the property while applying for permits but such transactions are quite rare due to the potential for delays in getting permits through council, plans endorsed, builders selected and contracts drawn up and executed and often other factors associated with the developer directly.

A more common strategy is to bridge the period between purchase of the land and development of the land with a land finance facility while obtaining permits and getting the project ready for development. Such facilities can range from short-term loans where permits are already in place and the developer simply needs to get all of their ducks in a row to longer term loans where land needs to go through a re-zoning process. Such processes can take years or even decades.

For sites that need to go through re-zoning a large factor will be flexibility around loan terms and rollovers. Bank finance on these sites is very difficult to obtain and private land finance funders prefer loan terms of 12-24 months to ensure liquidity so it can be a tricky process to get the right kind of loan facility for these sites. For example some lenders may have cheap interest rates but will require high rollover costs every 12 months while others may have higher rates but more flexibility around loan terms and such lenders may be more appropriate in some situations.

We're Here To Help

It's important to carefully consider all of these factors before making a decision how to finance land and as always advice from experienced professionals in the area of land finance can help guide you in the right direction and help make sure you get the type of loan that is right for you.