A struggle to maintain cash flow is damaging the property development sector and leading to the closure of many small to medium property developers, a specialist construction broking group has claimed.
HoldenCAPITAL Director Daniel Holden said it often takes up to 18 months for property developers to be paid.
“The very nature of property development is that a project will only incur costs throughout its lifecycle until the construction is complete, titles are available and the properties are sold and settled,” he said.
“In most cases, this process takes some 12 to 18 months and that is a long time to be expending money - even if it is borrowed - and not receive any income.”
Holden said a specialist finance brokers can add big value in this sector. There are a range of effective strategies brokers can recommend, including introducing a development management fee into a project’s feasibility.
“This allows the developer to receive income during the project lifecycle and in many instances the mortgage construction finance provider will allow a periodic development management fee to be advanced from the loan,” he said.
“Negotiating more favourable settlement terms can also potentially delay paying for the property until you have substantially removed the approval risks associated with it. This in turn will improve the funding costs and the project cash flow in general.
“A professional construction finance broker can assist with all of these processes and add value to your business.”