Archive for the ‘Developer Finance’ Category
Banks and financial creditors are usually the most common companies that finance homes in foreclosure. This is because they are a more reliable source of huge amounts of money for loans. They are also able to properly weigh the values of homes and other real assets that can be put up for foreclosure, which ensures accountability and transparency for the entire process. But there are also other companies that finance homes in foreclosure, depending on the situation. Technically it’s different from the conventional foreclosures but generally the principle behind the process is the same. Private entities engage in a contracted deal that involves loans with conditions agreed upon in the event that the loan is not repaid within an agreed period of time.
But in these kinds of transactions, still the companies that finance homes in foreclosure usually consult banks or other financing firms to mediate the entire transaction so that the much required documents or paperwork are secured. And in the event that the loaner cant pay back the lender, the bank repossess the assets placed on mortgage and the entire ownership is given to the company involved. The process of selling these assets start and continue until the debt is repaid.
This is why when you buy foreclosure homes; sometimes the companies that finance homes in foreclosure are not banks but rather private firms. Auctions are set by these companies and earnings go to them. In some cases, the homes wouldn’t be sold but rather utilized for the company’s profit, which all depends on the discretion of the company or companies involved.
In any case, the same reasons why foreclosure occurs apply with those private companies that finance homes in foreclosure. Usually the loaner fails to repay his or her debts in time or couldn’t respond or negotiate with foreclosure notices. Because of this, individuals who strike deals with such companies should be prepared so that they wouldn’t end up losing all the assets they have worked so hard for. This, in fact, isn’t so hard to do since there are so many resources that are rich in information on foreclosure homes and the companies involved. These materials would be more than enough to explain to the average entrepreneur or homeowner what they need to do and keep on the lookout for when they engage in this kind of transaction. By staying informed people can surely make the most out of mortgages without risking any losses.
There are two sides to real estate development feasibility study: The Cost Side & The Income Side.
I am going to concentrate in this article on The Cost Side.
Having told you that a feasibility study is vital when applying for finance, it is however, just another cog in the wheel of the property development process.
To help you come to grips with the term, feasibility study, it might help you if I call it a, Financial Analysis, of all the costs and income revenue that tell you if your development will produce a profit.
Where To Start?
When you are at the very beginning of preparing a feasibility study – I mean when you are just thinking about buying the land on which you propose to develop a building, your initial cost figures are liable to be a bit ‘rubbery.’
They’re general – they are not exact and can’t be exact, because all you know at the beginning is the ‘asking price of the land.’
Hopefully the land cost will be less than the asking price after you complete the buying negotiation. Can you see that there is going to be a difference in just that first item of the feasibility study – land cost?
OK – if you accept that, you’ll also accept that the associated land costs will also vary. Items like conveyance costs, legal charges, stamp duty, adjustment of utility charges and other costs.
That should demonstrate to you that a feasibility study goes through several stages.
The first stage uses figures that are the ‘best’ figures you have available at the time. The last stage is when all your cost figures are firm and final.
But as you are only at the stage of deciding to buy the land or not, you figures are “general and loaded with safety” – in dollar terms.
Let’s be clear about what I mean here. For the land cost you would use the full asking price and all the associated costs, at full calculation for your initial entry in the feasibility study. Then if you negotiated a lower price you are safe.
If you first feasibility study shows a satisfactory profit return for the risk of doing the development, you will proceed and gain legal control of the land.
Well, to gain control, you must have concluded a negotiation on the land sale price – so you have now “firmed up” on one of the cost items. Hopefully it is lower than, or the same as the figure you allowed in the feasibility study.
In the first feasibility study you will allowed a figure for the fees of the design consultants.
People like the architect, the engineer and so on. Well now you have to engage them to create the initial design for you and again this is a negotiation that will either be within your feasibility study allowance or not.
The next major item in your feasibility study will be the constructions cost.
If your development comprises ten town homes, that are aimed at the luxury end of the owner occupier market, your market knowledge may tell you that you should allow $180,000 per to town home or $1.8 million to build all ten.
Your design team will have to design well within those cost parameters and after the initial design is complete in preliminary format, you will need to get a few master builders to give you a price.
If you are well within the $1.8 million, then you may decide to leave the $1.8 million figure in your feasibility study. This would be smart if the buider’s figure was say, $1.7 million.
The extra $100,000 acts as a safety buffer as you are only pricing off non-detailed preliminary design plans.
Now. let’s say it’s your intention to sell all these town homes at a profit, so you have allowed some marketing costs to cover sales commissions, brochure printing etc. in your feasibility study.
At this stage the biggest figure is the sales commission and so you have been out talking to agents and so you have a good idea that your figures are OK.
At this stage we have wrapped up all of the “major” costs except the finance costs or interest on you borrowed development finance.
By now, hopefully you will have bought my e-book, and know how to go about seeking development finance the correct way and not the dumb way.
So you will not only know the best interest rate, but more importantly, have the correct type of loan and on the correct “terms” – you know the small print stuff.
At this stage everyone I teach wants to buy a software program so that they can get all the calculations done “easy like.”
Well I have a problem with that – I know, and believe, that for you to get to know your development intimately, you have to go to the trouble of doing the feasibility study figures manually – it is only adding, subtracting and multiplying some figures.
It is not difficult and the benefit is that you get to “know” the importance and interplay of each figure on the end result, being profitability.
So a simple spread sheet broken up into months on an XL is all you need.
In month one you buy the land for $286,500 and associated costs of say, $21,700 so you enter a figure of $310 ($308,200 rounded up to $310,000 – you have added a bit of safety in this one item)
Note: never use the full figure allways round up and take off the last three zeros – so $310,000 becomes $310l; $3,500 becomed $3.5 and $800 becomes $8. This makes it easier to read and creates less mistakes.
You then spread the design costs across the page to reflect the negotiated deal you did with the designers.
Then the construction costs – marketing costs and so on. You can divide these individual costs up into a many smaller items as you wish.
But the real thing you are doing is setting out your best estimate of the flow of cash that is required from the Lender and also from your own equity funds – the Cost Cash Flow.
Once you have these figures spread across the page you add then vertically for a total monthly figure – and also horizontally for each item total.
Hopefully the big development cost total in the bottom right hand box is equal to the vertical and horizontal totals.
It is – great; go to the top of the class.
Earlier I mentioned that you will have concluded the terms of your development loan.
Well, let’s say that the Lender has agreed to lend you 80% of your costs. This means you have to provide 20% from your own capital resources.
Having got the monthly totals you can now calculate 80% of each figure, because this is the amount on which you will pay interest.
It is these figures that you now calculate interest on each monthly cash flow and arrive at a total cost of the finance for your development.
You now add the total interest figure to the Cost Total and arrive at what we call the Total Capital Cost of your development.
There are a total of about 44 item headings that make up the Cost Side of a Feasibility Study.
Payment schedules can range from increments of 10% up to 20%. It is at the discretion of the developer how they structure it
The benefit of buying off-plan is that re-sales command relatively high premiums therefore reducing any profit margin in the investment considerably.
Who Can Buy?
Any investor, overseas or resident, can purchase in Dubai’s luxury property developments.
Home Financing
If you are looking for home financing options in Dubai, most developers offer finance packages. However, Tamweel is certainly one of the best options. Tamweel offer a wide range of products for you to choose from. Tamweel finance properties that are ready to move into, as well as those that are under construction. They will even pre-approve your loan before you start looking so that you will know exactly what your budget is. In addition, Tamweel offer you the option of owning the property outright, or leasing it from them with an unconditional offer to own it at the end of the lease period – whatever suits you better. All of their products have been designed keeping your individual needs in view, especially the need for stability and peace of mind, and that is what makes us sure that they have a solution that is just right for you.
Payment Terms
In general, a deposit representing 10% of the buying price is required at the contract-signing stage for all new development properties. This is followed by what are known as stage payments that are made at regular intervals through to completion. Contact us for project-specific details.
Bank Accounts
Buyers do not need a local bank account to arrange purchases, though these can easily be arranged through our partners in Dubai.
Appreciation
Property prices in Dubai have experienced considerable growth, and are forecast to remain this way for some time. This can be clearly seen if comparing current prices with those of 6 months ago. Like all investments, however, property prices can go down as well as up.
To Buy on the Secondary Market or the Resale Market:
If during the construction stage of a property a second party wishes to purchase the property from the owner then the process is straight forward.
The buyer pays the owner an agreed sum which includes those payments the owner has already made to the developer and any premium applied by the owner.
Exchange of contracts with owner at the developers head office usually within two week period.
The developer will then charge a percentage of the original price of the property (typically between 2% to 7%) to reissue the PSA with a new name on it and update their title records. This must be done either in person or with the buyer’s authorised representative. The whole process takes a matter of minutes.
Contract re-issued in buyers name – there is no legal representation for either party or any stamp duty implications.
The buyer will then continue to pay the remaining instalments to the developer as laid out in the PSA.
Commission, typically 2 to 3% is paid to the agent.
The transfer fee is paid by the purchaser.
What exactly is freehold in Dubai?
Purchasing a freehold property in Dubai now means that you own the property forever or until you decide to sell it. You are allowed to pass this property to your family for example, and they enjoy the same level of ownership as you do.
Most important for investors, your resale rights are guaranteed, as is your freedom to rent out your property to a third party, though some restrictions apply to individual developments.
You should note that although these are freehold properties, some conditions on their owners apply, because they are “private community” developments. These conditions will restrict what owners can do with their properties, and oblige them to maintain their properties to certain standards, according to the themes and quality of the communities.
When buying an apartment, the nature of ownership is different from that of a villa, because an apartment is a unit in a building. These are normally classed as “common hold”. Sale agreements for apartments do, however, usually warrant effective full ownership of the unit, subject to restrictions applying to the building, such as renting out the unit, and making modifications.
Where can you buy freehold properties?
Most property developers in Dubai offer freehold, but so far most of the freehold developments have mostly been limited to the Sheikh Zayed Road, and the area of Jumeirah (including Palm Island). However, exceptions to this include the Arabian Ranches and Emaar Towers in downtown Diera. Other future developments include Nakheel’s International City project.
What about buying in other emirates?
So far, the UAE as a whole does not have laws regarding the sale of freehold property to non-GCC nationals. Each emirate makes its own property laws, as Dubai has done. Recently Abu Dhabi announced the availability of freehold, limited to “surface rights” for non-GCC nationals in the Al Raha beach area, outside the main city limits. Ras Al Khaimah, in the north, has created a similar development. The other emirates are expected to follow suit, but there have been no definitive announcements at the federal level yet.
Are property owners eligible for residence visas in the UAE?
Many developments give you the opportunity to gain a residency visa through purchase. Read about Procedures for obtaining a residence visa in our articles under Immigration.
Property Law
The freehold property market in Dubai really started in 1998 when the Dubai Marina project was launched. At that time there was no freehold property law, and villas were sold “leasehold”, on 99 year leases. In 2002 a decree was issued by the Dubai government granting freehold rights to non-GCC nationals (The GCC is the Gulf Cooperation Council, comprising Saudi Arabia, Kuwait, the UAE, Oman, Bahrain and Qatar.) This provided the impetus that has led to the size and dynamism of Dubai’s property market today.
Dubai Residency
The Government has stated that a special category of residence visa will be granted to people buying ‘foreigner’s’ properties. The visa will allow a purchaser to live, but not work in Dubai. The arrangements for granting, and the terms of the visa, are at this time unclear.
Only the Government of the UAE can grant these visas, not the developer or estate agent.