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Why Construction Loan Is Harder To Get Than Home Mortgage

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Industry insiders are forecasting an uptick in the real estate market the coming year but securing a loan to develop a property is not a walk in the park.

Construction loans are considered a high-risk proposition, and nine in 10 applicants typically end up knocking at the doors of private lenders, unlike the home buying market where the conventional bank mortgage is the norm.

One of New Zealand’s leading mortgage brokers Nathan Miglani says banks tend to rely on a lot of assurances before lending money for construction projects. 

“For instance, if you are planning to buy a piece of land and develop townhouses, the bank would want proof of pre-sales, etc. Many building projects are not at that stage in their sales cycle at the time a loan is needed,” says Nathan, whose company NZ Mortgages has recently launched a specialised construction loan business by the name Construction Loans

Construction loans, unlike conventional mortgages, are considered high risk due to their complex nature and the uncertainties inherent in construction projects. Consequently, the process of obtaining such loans is significantly more arduous.



It is relatively easy to find a broker for the traditional home mortgage but it’s much harder to find experts specialising in construction loans since they are few and far between. 

“There’s a scarcity of mortgage brokers focusing on construction loans since only a select few have the deep knowledge necessary to navigate the complexities of this domain,” Nathan says. 

Even within the construction loan industry the market is segregated and certain kinds of mortgages might be harder to find than others. 

A report by CBRE Research last year showed lenders were keener to fund townhouse development, even more than apartments, with seven in 10 domestic non-bank lenders saying that is their preferred option for new construction loans.

The lender sentiment survey found industrial property lending was favoured, but funding land subdivisions wasn’t as popular as those two sectors, nor apartments.

Nathan says applying for a construction loan requires a nuanced approach. “You have broadly two types of applicants in this class-homeowners and first-time builders; and seasoned builders and developers. All these categories are different and require deft handling of the proposal and financial forecasting.”

After a period of relative stagnation over nearly the last two years, there are promising signs of revival in the construction industry. 

Nathan says strong indicators point towards growth in the early months of 2025. “Bank interest rates have stabilised and astute developers are already proactively acquiring land.”

Nathan says the launch of the construction loans division underscores NZ Mortgages' commitment to innovation and addressing the evolving needs of its clientele.

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