Release equity in development land.

[Dena]

Hi there,
We have recently recieved planning permission for a small housing development. The land is now worth approx 900,000e with an outstanding mortgage of 200,000e.With the current housing climate slow, what would be the best way to release equity in the land other than selling it at the moment.Thanks

 

[Camry]

The answer would be conditional on your wider financial circumstances.

I don't like the term "equity relaese" or "equity withdrawal". Much prefer to call a spade a spade. The choices are simple: sell or use it as collateral to borrow.

If you don't want to do the former, then you need to be able to consider both the cashflow and return implications of the latter. Land has negative carry (provides no cashflow), so you have to factor in 5%+ per annum, more likely 6%+ for a commercial securred loan. The questons for you are:

• Can you carry that cash flow demand (€60,000+ per annum)?
• At what point does this destroy the return you anticipated from your development project?

Do your sums carefully

 

[Lobby]

On what basis is it worth €900,000.

The value of development land is now quote variable with banks being reluctant to lend to developers unless they have substantial cash/assets in place already.

 

[Dena]

Thanks Camry for your advice, how did you come to the €60,000+ per annum figure.

 

[Camry]

Thanks Camry for your advice, how did you come to the €60,000+ per annum figure.

It was just a finger in the air, so to speak. If you do get someone to advance you the capital it will cost you rate% x loan. I just assumed you would be lucky to get less than 6%.