5 advantages of taking out a land bank loan

5 advantages of taking out a land bank loan

If you’re unsure what a land bank loan is or how it can help secure a property cash flow.

Land Bank Loans in Australia are relatively easy to secure, and once you understand the process, you’ll be well on your way to investing in the booming Australian property market.

Read on here are 5 advantages of taking out a land bank loan.

1) Time the market

If the market is expected to pick up, you may choose a land bank loan for the short term (a period of up to 12 months) before selling the property to maximise your property value before selling it. Many developers take on the cost of the interest and fees as “holding costs”. However, suppose there is a significant uplift in the market. In that case, these holding costs can be negligible compared to the property values’ uplift over the same period. You can see this clearly in the Sydney and Gold Coast property market, where prices have skyrocketed over the past 24 months. Being out of the property market for some developers and property investors in these booming markets is an excellent example of how a land bank loan can help them stay in the market and reap these massive gains.

Also read: 8 Advantages of Choosing a Private Lender

2) Effect a development strategy

When getting a landbank loan over vacant land, there is the potential to add value to the site through obtaining DA Approval to subdivide or build a property on the site. For example, suppose you have secured a parcel of land in a great location, and you can see the uplift potential by adding value to the property before selling it or renting it out. In that case, a landbank loan will be a great way to purchase the land or release equity from the land so that you can continue with your development strategy. 

3) Use equity towards interest payments

You can capitalise the interest into the facility within the LVR constraints, which removes the pressure from paying the interest weekly, fortnightly or monthly during the loan term. This will allow you to focus on your business or property strategy, knowing that you can utilise this period without any hassles or worrying about defaulting on the loan facility. 

4) Tidy up aspects of the property before refinancing (or selling)

As an example, if you were to acquire a commercial building with no tenants, most banks and second-tier funders may turn you away for a loan. You can lean on the benefits of a landbank facility to secure the acquisition of a completed vacant building while the property is not generating any income, using the time afforded in the loan term to negotiate lease agreements with potential tenants. This takes away the pressure to enter into unfavourable contracts and secure a tenant at the correct market price and appropriate incentives, offsetting the cost of the facility. You can also use a landbank facility to undertake non-structural improvements before ‘flipping’ the property for a profit. You can choose loan terms as short as one month up to 12 months to minimise the cost of a more extended facility and avoid being locked into a longer fixed term. 

5) Settle on time

Make sure you can quickly settle on time, so you don’t lose the property. You can use a land bank facility to acquire a property or refinance a property loan as there are fewer lending requirements involved in a land bank loan. In this sense, it is possible to utilise a land bank loan similarly to a bridging loan due to the ability to capitalise your interest payments during the loan term. Just imagine wanting to buy that great little commercial property in Surry Hills, the CBD or Chatswood; then a land bank loan is a fabulous option. Or perhaps you’ve spotted that lovely piece of land in Parramatta or the Eastern Suburbs of Sydney where you want to build your next high rise development, then securing a land bank loan is a perfect option.

At Sparrow Loans, we prefer security property with DA Approval, but we are open to non-DA Approved sites on a case by case basis.

If you’re wanting to take out a land bank loan speak to us today at Sparrow Loans.


About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.