Property Development Finance Australia
Quick Answer
How does property development finance work in Australia?
Typically 65% to 75% of total development cost
Property development finance funds multi-dwelling projects like townhouses and apartments. Lenders assess feasibility, presales, developer experience, and GRV. Funds are drawn in stages as construction progresses, and the loan is repaid from sales proceeds on completion.
- Typical funding 65% to 75% of TDC
- Developer equity 25% to 35%
- Presale requirement Varies by lender
- Key lender focus Feasibility, GRV, track record
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Two factors that shape your development finance
Project feasibility and GRV
Lenders assess whether the development stacks up financially. They review total development cost against gross realisation value (GRV) to confirm there is enough profit margin to absorb cost overruns and market movement. A project with a thin margin or inflated GRV faces tougher scrutiny.
Feasibility Risk
Developer experience and presales
A proven track record of completed developments gives lenders confidence in delivery. Presale contracts reduce sales risk by confirming buyer demand before construction begins. First-time developers or projects with no presales may need non-bank or private lender pathways.
Delivery RiskTypical funding ranges for development finance
These are general guide ranges only. Final terms depend on feasibility, presales, developer profile, location and lender appetite.
-
Up to 55% TDC First-time developer or no presales
-
Up to 65% TDC Experienced developer, some presales
-
Up to 70% TDC Strong feasibility, solid presales
-
Up to 75% TDC Proven developer, full presales, metro site
Development loans are never assessed on land value alone. Lenders need to see that the numbers work, the builder is credible, the approvals are in place and the exit strategy is realistic.
Looking for finance on a property development?
What lenders look for in a development finance application
Development finance is assessed on the strength of the project, the credibility of the developer and the certainty of the exit strategy.
Detailed feasibility with realistic costs and GRV- Development approval or planning permit in place
- Presale contracts meeting the lender's coverage threshold
- Fixed-price building contract with a licensed builder
- Developer track record and sufficient equity contribution
Self-employed developers with limited documentation may also want to compare commercial low doc loans.
Common development types financed
Most development lenders will consider projects where the feasibility, approvals and exit strategy are clear.
Townhouse developments- Apartment projects
- Duplex and triplex builds
- Unit complex projects
- Mixed-use developments
If the project involves land division without construction, see subdivision finance.
Key factors for property development finance
These factors usually determine whether a development loan fits a bank, non-bank, private or specialist development lending pathway.
01
Project feasibility
Lenders want a clear feasibility showing total development cost, GRV, profit margin and contingency. A thin margin or unrealistic assumptions will reduce lender appetite.
02
Presale coverage
Banks typically require presales covering 80% to 100% of debt. Fewer presales may be acceptable for smaller projects or with non-bank lenders willing to take more risk.
03
Developer experience
A proven track record of completed projects is one of the strongest factors in lender confidence. First-time developers face more limited options and may need to partner with an experienced team.
04
Builder and contract
Lenders require a licensed, insured builder on a fixed-price contract. Cost-plus contracts and unlicensed builders are unlikely to be accepted by mainstream lenders.
05
Planning approvals
Development approval (DA) or a planning permit must be in place before most lenders will assess the file. Projects still awaiting approval carry too much uncertainty for most funders.
06
Exit strategy
The lender needs to see a realistic plan for repaying the loan, whether through individual lot or unit sales, refinancing to a term loan, or retention as investment stock.
Common problems with development finance
Development deals can fall apart when the feasibility, presales, builder or approval position does not meet the lender's requirements.
Presales fall short of lender thresholds
If you cannot reach the presale level the bank requires, the loan may be declined or delayed until enough contracts are exchanged.
Start presale marketing early and consider non-bank lenders with lower presale requirements.
Feasibility margin is too thin
Lenders typically want to see a development margin of at least 15% to 20% on cost. A project with a tight margin leaves no room for cost increases or market softening.
Review your cost estimates, contingency allowance and GRV assumptions before lodging the application.
No track record as a developer
First-time developers are a higher risk for lenders. Without completed projects to reference, you may face higher equity requirements or need to use a specialist lender.
Partner with an experienced developer or appoint a reputable project manager to strengthen the application.
Builder or contract issues
A cost-plus contract, uninsured builder or builder without a strong project history can cause the lender to reject the file or reduce the funding amount.
Use a licensed, insured builder on a fixed-price contract with clear inclusions and a realistic construction timeline.
How to get property development finance in 6 steps
Step
01
Prepare the feasibility
Build a detailed feasibility covering land cost, construction cost, professional fees, contingency, interest, selling costs and realistic end values (GRV).
Step
02
Secure planning approval
Obtain development approval (DA) or planning permit from your local council. Most lenders will not assess a file until approvals are confirmed.
Step
03
Appoint builder and get QS report
Engage a licensed builder on a fixed-price contract and obtain a quantity surveyor cost estimate to support the lender's assessment.
Step
04
Achieve presales if required
Exchange presale contracts to meet the lender's coverage threshold. Some non-bank lenders accept fewer or no presales depending on the project and developer profile.
Step
05
Compare lender pathways
Assess whether the project suits a major bank, tier-2 bank, non-bank development lender, private funder or a combination including mezzanine finance.
Step
06
Lodge and manage draw-downs
Submit the full application file, respond to lender conditions and manage progress draw-downs as construction reaches each stage.
How property development finance works in Australia
Property development finance is a type of construction lending designed for multi-dwelling projects where the end product is multiple dwellings built for sale, rental or a combination of both. It covers townhouse developments, apartment buildings, unit complexes, duplexes and mixed-use projects with a residential component.
The lender's primary focus is project feasibility. They want to see that total development cost (including land, construction, fees, interest and selling costs) leaves a healthy margin against the gross realisation value. Most lenders expect a development margin of at least 15% to 20% on cost, though this varies by project type and market conditions.
Funds are drawn down in stages as construction progresses, similar to a standard construction loan but typically with more detailed reporting, quantity surveyor inspections and lender oversight. On completion, the loan is repaid from sales proceeds as individual lots or units settle, or refinanced into a term loan if the developer intends to hold stock as investment.
The right lending pathway depends on the project scale, developer profile and presale position. A clean metro townhouse project with strong presales and an experienced developer may suit a bank. A first-time developer, low-presale or regional project may need a non-bank or private lender to get started.
Get help with property development finance
Development finance involves feasibility review, presale assessment, builder verification and lender-specific project criteria. A suitable finance contact can help you structure the deal and present the file to the right lender.
Property Finance Help connects users with finance professionals who understand development lending across banks, non-banks and specialist funders.
Property Finance Help is a lead generation service, not a lender, broker, or financial adviser. All information on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. Consider seeking independent professional advice before making any financial decision.
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