A New Property Development Model Is Challenging the large End of Township

Property Development - Changing the Funding Model

The Indian property outlet may be possibilities with residential investors growing focused on capital appreciation for returns, whilst commercial property transactions have actively pursued yield based investments over the past 12-18 months. The property market seems limited by large interest from offshore investment and native cashed-up investors and developers. The short to medium-term outlook for interest rates appears to be positive, but longer-term there's an expectation of rising rates - tightening interest rates from banks are coming into play and access to development finance isn't as rosy because it once was.

The restrictions on institutional lending will become a growing issue because the major banks got to reduce exposure to property leading and markets. The market is additionally adjusting to tightening on foreign buyers and global policy changes happening around the movement of capital outflows.

Developers/Builders - The Challenge

Developers appreciate there's still valuable opportunity within the market but the challenge now sits in accessing capital and potentially watching non-bank capital sources. Key aspects are going to be to think about development design, building services and fabric costs. Stripping back development costs to these numbers can demonstrate an opportunity to extend the funding budget and potentially look at specialist funding sources.

The cost of funding might rise on the accounting, but if investor equity is expensive, the rise LVRs available with private funders might provide net decreases within the overall cost of capital. The ability to access this funding without pre-sale norms make it a desirable option for smaller developers.

Typically buildings are being designed and built to minimum code removing the prices of all the bells and whistles to maximise builder & developer profit. Less idea and accentuation are placed on the new development's ongoing operation and liabilities.

The New Model

What if we could put all together these additional extras to make a far better-performing asset with lower operational costs, but not need to increase the capital budget - in-fact decrease our cost of capital by accessing Green Structured Finance, long-term funding gainable, pay a subsidy by specialist product funding. This new loan/debt are going to be serviced by the operational savings made by the improved technology and products.

As an example, a developer is building and owning a mixed-use site for 350Cr. We consider the planning and energy-consuming technologies for the location.

SFG assess the continued lifecycle cost of those technologies. We then create a package outlining which products have an attractive return on investment based on the predicted energy costs. For this instance, 50Lac is taken out of the cost of capital of the project for the improved package. This will decrease the developers Capex and Opex, improving cash flow and returning profit. This reduction of 50Lac or 10% can be used on other projects or contribute to improving the project LVR and financial make-up.

Green Structured Finance from IBharat Builders may be a new approach to a tightening development financing market, designed to optimise financial and development performance. We specialize in pulling together projects crossing the boundaries of monetary, Design, Advice and Delivery. Contact us to ascertain how we will help improve your development.