How to accelerate the pre-construction phase: Jo Chivers
There are times in the development process that just seem to drag on and on. One of these irritating drawn out processes is the period after the Development Application (DA) and Construction Certificate (CC) are approved but before construction can commence.
After the approvals are received, our clients are then able to finalise their construction loan. Prior to this they have received a preapproval from their bank. For their construction loan to be unconditionally approved, the bank requires all supporting documentation. This includes stamped plans, consents, signed builder's contract and insurance along with other personal documentation confirming your income.
Property Bloom is in this process with several of our projects right now and it's like riding a bike from a smooth bitumen road into a sand dune.
The momentum and excitement that builds as we received the DA consent from council gathers speed by the use of a private certifier to fast track the CC process. So it's just a week or two before we usually obtain the CC consent from lodgement. It's then the builder's contract is issued to clients for signing and a copy is given to the bank together with the other required documentation to finalise their construction loan.
Then we hit the sand that bogs us down, slowing momentum. The banks will take their time processing the loan but it's also the application of the Home Builders Compensation Fund (HBCF) policy, formerly known as the Home Warranty insurance that slows the process. HBCF is required to be raised by the builder and covers their client for losses arising from defective and incomplete work where the builder becomes insolvent, dies or disappears.
In the past we were able to apply for this insurance as soon as the CC consent was issued, however now the insurance company wants a copy of the signed builders contract and this adds another two weeks to the process as we need to wait for clients to review and sign the contract.
Even once the bank has all they need, including the insurance policy, it can take them another two weeks to issue the authority to commence construction to the builder. We cannot commence construction without the bank's go ahead in writing.
Two weeks here and two weeks there can all add up. When you are relying on third parties there is little you can do apart from be a 'squeaky wheel' and keep calling to see how the application is travelling.
One way to accelerate the process is to avoid using a construction loan. This may not be an option for most developers but if you have enough cash or equity available in other properties then you can look at the option of setting up a line of credit and funding the construction from this. Always get accounting advice on this. The big benefit is that you will avoid the headache the paperwork can cause and you won't be waiting around for the construction finance approval.
Finally, construction may start as soon as you've signed the contract and the HBCF insurance policy is issued. We have found this to save approximately 6-8 weeks off the time frame of a development. It also has benefits on completion and fast tracks the handover process.
Jo Chivers is Chief Executive Officer of property development project managers Property Bloom.
