Financing subdivision

[zenq]

Hi, I have DA and works approval on a rural subdivision in Nth QLD. The approvals have taken years to come through with various council stuffups and delays, but finally have the approval, but out of cash for the development. I may be able to borrow the money but I'm reluctant to overextend in the current financial climate (certainly no bank will lend me the money with current assets/liabilities, except once I have pre-approvals). Problem is, I need to spend at least $100K before we can get titles, which I need in order to sell off the plan.
We have the property on the market for a very reasonable price (in case DA etc didn't come through and we had some sort of setback like job loss etc.) and have a couple of people about to make an offer, but well below the price we can realise by developing.

I don't want to do a JV per se, but thinking about some sort of contractual sale of one of the more valuable blocks at a discounted price with the owner taking possession while I use the cash to develop the land and complete the subdivision. Obviously I would need decent legal protection to ensure I wasn't left exposed, and if soemting went worng and I couldn't complete the subdivision I would lose out, but I've already done all the hard yards to get here so don'[t want to sell the keyturn project for a bargain price (most buyers don't want/can't afford to do the subdivision, so I'm not getting any premium over the block in its raw state, so basically I've overcapitalised unless I can complete the project. There is a basic home on the property on one of the best blocks: once developed that block with the house is worth about 100-200K less than I will get for the whole property if I sell, even with the DA. I've put close to $150 into development and holding costs etc.

Feel like I've taken all the risks and deserve the rewards, but just don't want to throw good money after bad etc.
Any comments on this type of contractual sale?

Cheers

 

[Philip Thomas]

Rural Real Estate Development & Subdivision

I gather from your post that you have conditional DA approval to subdivide.

Council wont stamp plans until you have provided infrastructure.

To provide infrastructure you need additional finance.

Banks are reluctant to provide additional fiancé for rural subdivisions in the current market.

While settlement cannot take place until you can issue title, what prevents you from selling off the plan & collecting deposits. If you get sufficient pre completion sales this will reduce the risks for the banks. Being rural lots the property could still be used for rural purposes by future owners.

There are financiers that specialise in just rural areas like Rabobank.

The alternative will be to seek non bank finance. But you would want to have some pre commitments before you did this. Pre commitments would also make JV / partnerships more attractive.

There is seldom an issue with contracts to protect your interests & those of the purchasers, provided they are prepared by a competent lawyer.

Philip

 

[zenq]

Thanks

Thanks for the comments. Your comments all seem to make sense.
I understood to sell "off the plan" I need title issued, thus need to provide all the infrastructure etc. If this is not the case then things will be a lot easier. Any idea where I can get some solid info on this (or your further thoughts would be appreciated). Thanks heaps

Zenq.