Residential loans to Developers running a buisness enterprise - GST question.

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Pimobpi
Participant
@pimobpi
Join Date: 2013
Post Count: 60
May 3, 2014 - 5:19 pm
Hi,
Not wanting to get into a conversation about whether residential or commercial loans are better for developers –
Just some of your opinions on how loans to property developers (running a business enterprise) may work.
Scenario:
Developer engages a builder to quote building costs.
Some banks allow for residential loans (80% LVR) for 3 dwellings or less to be built on the one block.
Other banks require that a commercial loan (70% LVR) is required for more than 2 dwellings on the one block.
For this exercise the Developer chooses the residential loan over the commercial one.
Would the bank loan money on the builders quote including GST or loan on the builders quote minus the GST?
Eg: If the builders quote is $1m (including GST).
Would the bank loan be $800K or would the bank loan be $727K?…..being 80% of ($1m – GST)
I will engage a mortgage broker, just wanting your opinion first.
Thanks to anyone that can reply.
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
May 3, 2014 - 7:33 pm
Assume all things being equal you would get 800k.
Course not quite as cut and dry as that.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Pimobpi
Participant
@pimobpi
Join Date: 2013
Post Count: 60
May 3, 2014 - 8:09 pm
Thanks Richard, I appreciate your reply.
Yes I am sure that there could be many other factors like whether a developer could service the loan, experience in developing etc.
Cheers and thank you.