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Financial Planning and Packaging Including Sources of Financing.
PRESENTATION
BY EMERY
WOODSTOCK OF
CONSULTANTS & PROJECTS MANAGEMENT LTD FINANCIAL PLANNING AND
PACKAGING INCLUDING SOURCES OF FINANCING
In requesting interim financing from
a Financial Institution to do a development, the developer should
provide that Institution with information which will enable them to
assess the project. Included in the information to be provided is
the financial aspect, which is in the form of a financial proposal.
It is recommended that the financial
proposal presented should include:-
Project
Brief
The project brief
provides an over view of the development giving a description of the
location, scope of work which will be undertaken, the development
cost, selling price of the units financing required, the development
period and the loan repayment period.
Developer's
Budget
A developer’s budget
should be prepared detailing all the component, which will be costed
in the project. Such costs for:-
-
Land
-
Housing
-
Infrastructure
-
Financial Cost
-
Selling Cost
-
Developers Cost
-
Legal Cost
The element that make up
the Developer’s Budget should be supported by detailed information
and supporting documentation.
Land
The cost of the land
should be verified by a valuation report.
Housing
Costs
The housing contractor
who has been selected to construct the units should provide a
detailed costing break down with all the relevant information for
each type of unit. This information, which is verified by a quantity
surveyor, should be supplied as s supporting document to the
Developer’s Budget.
Infrastructure
Cost
The infrastructure
contractor may not be the same contractor as the housing contractor.
From the quantities provided by the Quantity Surveyor the contractor
will provide an infrastructure cost. This cost as verified by the
Quantity Surveyor will be a supporting document to the Developer’s
Budget.
Professional Fees
Usually these fees are negotiated between the
professional required for the project and the developer.
Financial Cost
This is the interest, which will be incurred on
the loan, which will be required for the construction over the life of the
project. This is to be sup- ported by a cash flow. There is also a commitment
fee, which is usually 1% of the loan requested.
Selling Cost
This cost is incurred in the marketing of the
development. This cost depends on the demand for the units in that particular
development. If the response is favorable then the amount of advertising could
be reduced.
Developers Cost
This is made up of costs not directly related
to the infrastructure or the housing construction but miscellaneous cost
incurred in getting approvals etc.
Legal Cost
This is an estimate of what legal costs will be
incurred in splintering the titles and for transfers.
Developers Markup
The percentage markup may depend on the
previous cost, which would influence the selling price of the units. The
developer would have to decide on what is considered a reasonable percentage
and at the same time keep the unit affordable.
Project Profit or
Loss
The profit or loss statement indicates to the
lending institution the viability of the development. The information as it
relates to cost is obtained from the developer’s budget. The additional
factor is the income, which is expected to be generated from the sale of the
units.
Cash Flow
The cash flow is based on the loan financing
which will be obtained for the development for the infrastructure and the
construction of the housing units. The monthly requirement is arrived at from
a schedule which the contractors should provide indicating the amount of funds
which will be required on a monthly basis.
Because the developer is allowed to use 90% of
the purchaser’s deposits this is therefore used before utilizing the loan
funds.
The monthly draw down is indicated so that the
lending institution will be able to programme the needs of the developer.
Interest is calculated on the funds outstanding at a rate agreed.
The repayment of the loan is from the sales
proceeds. The percentage of the sale proceeds used to liquidate the loan may
vary.
Sale Projection
The Developer should prepare a sales projection
indicating the amount of sales likely to take place in each month by unit and
value. However most financial institution will not
The Schedule to be presented to the financial
institution will indicate the deposits paid.
Use of Purchasers Deposit
From the deposit received the developer may use
up to 90% of the deposit in the construction of the development. The amount
can only be used on the presentation of a Quantity Surveyor Certificate,
verifying that it represents construction work actually done.
SOURCES OF FINANCING
The Developer’s Budget will indicate the
total cost of the development, from this budget the financial institution will
loan interim financing which will be a percentage of some of the categories
listed, the remaining portion will be by other loans or developer’s equity.
Financial Institutions usually provide loan
funding for construction purposes only. The developer’s equity is usually
land, professional fees selling cost developer’s costs and legal cost.
Some sources of financing could be
Jamaica Mortgage Bank, National Housing Trust, Commercial Banks,
Building Societies and Insurance Companies.
In addition to these financing could
be generated from income if the project is phased. The sale and
profit of one phase could assist in the financing of the next phase.
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