What LVR on construction finance?

If the end value will be 2100 the likely haircut will be 20 to 25 %.

If you are exceedingly lucky it may be as little as 15 %.

This is because you wont have separate titles, and the valuer will value as OOT or In one line.

Below is an extract from 2 recent small dev, and the larger $ one shows the logic applied.

This is based on resi lending, and most lenders wont do more than 2 OOT devs

Commercial is a little more flexible, but does come at a cost, and usually no option of LMI, and private funding again a little more flex, but logically more $. Both commercial and private will demand a demonstrable exit strategy in either pre sales or take out finance.




As is value $590,000 (land $540,000 + Existing Improvements $50,000)
As if Complete (subject to 3 individual titles) $1,325,000
Market value $1,120,000 – One Title basis







7.2 Calculations and Assumptions



VALUATION APPROACH

Our primary method of valuation is direct comparison in order to arrive at the as if complete gross realisation and once we have arrived at the gross realisation value on an as if complete basis the hypothetical subdivision methodology is completed in order to establish the in one line as if complete market value.


VALUATION RATIONALE:

In the absence of further of comparable sales of “Duplex or Multi-Unit”, style properties we have had regard to sales of dwellings/units on small lots with their own individual title to arrive at a gross realisation of the individual units (assuming individually-titled) and then deducted an acceptable profit and risk factor, sub-division costs, holding and selling costs to arrive at our valuation.




PRIMARY "HYPOTHETICAL SUBDIVISION" APPROACH:

The market value for the units is :

Townhouse 1 $1,250,000

Townhouse 2 $1,250,000

Gross Realisation $2,500,000

Less GST $227,273

Selling costs 2.2% $55,000

Net realisation $2,217,727

Less profit and risk 7% $145,085

Less holding, interest

and subdivision costs $55,180

Less acquisition costs $121,048

VALUATION $1,896,415

ADOPT $1,900,000



In accordance with our instructions we have valued the units, "As if Complete" and "in one line" assuming both are on one lot and held on one title.

COMMENTS REGARDING "In One Line" BASIS: The calculations and deductions below reflect an (approx.) 24% discount on the individual value of the units if they were separately titled.

The inline value reflects the purchase price a prudent developer or investor would pay for the dwellings on one title in order to

then subdivide and sell the dwellings individually with separate titles at a profit. Therefore, our valuation is less than what would be achieved if the dwellings were already subdivided, had separate titles and were valued individually.

 

Yep. Got one approved last week subject to usual verification


Ta
Rolf

 

Unless there is previous experience and/or there is 70 to 100 % pre sold debt cover, most comm lenders wont touch this in the current climate.

ta

rolf