Property Development Finance
IN SPAIN
Developer finance is a loan used to fund property construction, from residential developments to individual self-build homes and major refurbishments. Unlike a conventional mortgage, the loan is not disbursed in a single payment. Funds are released in stages through drawdowns linked to construction progress. These loans are usually interest-only during construction, with the principal repaid in full at the end.
50+ financial institutions
Key Features of Property Development Finance
Bank developer loans typically provide up to 70% of the total project cost (LTC), with quarterly interest-only payments during construction and rates based on 12-month Euribor plus a margin of 1.5% to 3%. Arrangement fees range from 0.25% to 1%, and construction terms range from 12 to 36 months.
For projects that do not meet bank lending criteria, private capital offers an alternative: financing secured against unencumbered real estate, with funds available within three weeks.
The structure is critical: the lender assesses the project, not only the borrower. The development’s viability, budget, permits, exit strategy, and, for build-to-sell developments, the level of pre-sales are key factors.
Altavista Finance structures construction financing through its network of more than 50 financial institutions in Spain.
Types of Property Development Finance
1. Build-to-Sell Development
Financing for developers who acquire land, build residential units, and sell them. Once construction is complete, the loan is repaid as buyers take over individual mortgages.
2. Build-to-Rent Development
Financing for developers who build residential units to retain and rent out. Once construction is complete, the loan is refinanced into a long-term mortgage.
3. Individual Self-Build
Financing for individuals who build their own home. The lender assesses the applicant’s financial capacity, technical project, building permit, and budget.
4. Major Refurbishment
Financing for large-scale refurbishments, including partial demolition, space reconfiguration, and extensions. The structure is similar to construction financing, with staged drawdowns against progress certificates.
How a Property Development Loan Works
01
Project Assessment
The lender assesses the entire project: location, detailed budget, planning permits, technical project, construction schedule, and exit strategy.
02
Loan Completion and First Drawdown
Once approved, the loan is executed before a notary. The first drawdown typically covers the land purchase or initial construction costs.
03
Drawdowns Against Progress Certificates
Funds are released in stages against progress certificates issued by the architect or quantity surveyor. The lender verifies construction progress before releasing each tranche.
04
Interest During Construction
During construction, the borrower pays interest only on the capital drawn down – not on the total amount approved.
05
Completion and Exit
Once the first occupancy licence is obtained, the loan is repaid or converted. For build-to-sell developments, it is repaid through property sales. For build-to-rent developments or self-build projects, it converts into a long-term mortgage.
Typical Property Development Finance Terms
| Parameter | Bank Development Loan | Private Capital |
|---|---|---|
| LTC / LTV | Up to 70% of total cost (LTC) | 45% - 65% of asset value (LTV) |
| Interest Rate | 12M Euribor + 2% - 3% | 10% - 15% fixed |
| Term | 12 - 36 months (ideally 12-18) | 6 - 36 months (ideally 12-18) |
| Fund Disbursement | Against invoices and construction progress certificates | Direct disbursement |
| Presales required | 30% - 60% (build-to-sell) / No (build-to-rent) | Not required |
| Arrangement Fee | 0,25% - 1% | 0% - 3% |
| Structuring Timeline | 8 - 16 weeks | 3 weeks |
| Required experience | 3 - 5 successful developments | No property development experience required |
| Land requirement | Land acquired 100% with own funds | Unencumbered asset as collateral |
Private Capital: An Alternative When Banks Do Not Participate
Not every project meets bank requirements. Private capital offers financing secured against unencumbered real estate assets. Unlike a bank, it does not assess the borrower’s income or development track record: it assesses the asset pledged as collateral and the exit strategy.
What the Financial Institution Assesses
01
Project Feasibility
The project must be economically viable. The lender assesses the relationship between the total cost and the estimated final value.
02
Developer Experience
For property developments, the lender assesses the developer’s track record—the number of projects completed, their locations, and the results achieved.
03
Exit Strategy
How the loan will be repaid: unit sales, long-term refinancing, or rental income.
04
Location and Market
The project’s location is critical. Lenders assess local demand, comparable prices, and the target buyer profile.
05
Licences and Permits
The building permit must be granted or at an advanced stage of approval.
06
Budget and Timeline
A detailed line-item budget and a realistic construction schedule are essential requirements.
Frequently Asked Questions About Construction Financing
Can a new SPV obtain construction financing?
Yes, but with conditions. Most institutions finance SPVs provided the partners or the developer have a demonstrable track record in property development.
What is the typical LTC for construction financing?
Bank development loans can cover up to 70% of the total project cost (LTC). With private capital, the LTV ranges from 45% to 65% of the value of the collateral.
Are pre-sales required to obtain financing?
For build-to-sell, most banks require between 30% and 60% presales. For build-to-rent and self-build, presales are not required. The private capital alternative does not require presales.
Can an individual finance the construction of their own home?
Yes. Self-build financing is available to individuals. Once construction is complete, the loan converts into a residential mortgage.
What is the typical term of a construction loan?
Bank development loans typically have terms of 12 to 36 months. Private capital terms range from 6 to 36 months, with funds available in approximately three weeks.
CONTACT US
If you are considering a real estate transaction in Spain and want to understand which options make sense to explore, we would be happy to talk.