Property developer loan
This is a specific form of lending tailored to property developers and to buyers of finished properties from developers when they take over a share of the loan granted to the developer by subrogation.
This type of financing generally takes the form of mortgage lending and usually involves successive drawdowns during the construction phase, which will be authorised by the bank as and when the requisite building certificates are submitted in due form.
There is usually an interest-only period for a number of years at the start of the loan while construction is under way, until the loan is divided up among the finished properties and they are ultimately sold.
After the end of the interest-only period:
- If there are unfinished or unsold properties, the property developer will be responsible for repaying the corresponding loans, including capital and interest, either until loan maturity or until the properties are eventually sold.
- If any buyers are not interested in using the loan to finance their mortgage they will have to repay it.
- If buyers take on part of the property developer’s loan by subrogation, they become the new borrowers and therefore must make payments according to the conditions established in property developer’s loan deed for subrogated buyers, unless the bank asks for prior modification of those conditions as a precondition for subrogation. When this happens, it is usually to ensure the bank is included in the deed of conveyance after subrogation and novation.