Development Finance
Finance for land acquisition and construction of residential and commercial development projects. We work with developers and investors to assess funding structures across a panel of construction lenders.
Who is development finance suitable for?
Development finance is used by property developers, builders and investors constructing new buildings or subdivisions. Eligible projects commonly include residential subdivisions, townhouse and apartment developments, commercial construction, mixed-use developments, and owner-builder or custom-build projects. Most development lenders require experienced developers or professionally managed projects.
How development finance works
Development loans are drawn progressively as construction milestones are reached — lenders do not typically advance the full loan amount upfront. Drawdowns are usually aligned to a construction schedule and subject to progress inspections by a lender-appointed inspector. The developer is expected to contribute equity (the difference between total development costs and the approved facility) before the lender contributes funds, in most cases.
Development loan facilities commonly cover land acquisition, construction costs, soft costs (design, approvals) and interest capitalised during the construction period, though structures vary by lender and project.
How lenders assess development applications
Lenders evaluate the developer's experience and track record, the project feasibility (whether the numbers support the loan), the pre-sales or pre-leasing position (some lenders require pre-sales coverage of a portion of the debt before committing), the quality and location of the site, and the builder's credentials and contract type. A formal feasibility study and quantity surveyor's report are commonly required.
Typical documentation required
- Project feasibility study or financial model
- Quantity surveyor's report or construction cost breakdown
- Development approval or planning permit
- Builder contract (if applicable)
- Site valuation (as-is and end value)
- Developer experience and track record documentation
- Personal and corporate financial statements
Indicative LVR considerations for development
Development lenders commonly express their appetite in terms of loan-to-cost (LTC) and loan-to-gross-realisation-value (LTGR) ratios. Indicative ranges vary significantly by project type, scale, location, developer experience and market conditions. These figures are indicative only and do not constitute an offer. Actual terms depend on full lender assessment.
Common challenges in development finance
Common issues include first-time developers who may face limited lender appetite, cost blowouts that exceed the approved facility, delays in obtaining planning approvals, pre-sales requirements that are difficult to meet in softer markets, and builder insolvency risks. We discuss these factors upfront and help structure the application to address lender concerns.
Frequently Asked Questions
Do I need prior development experience to access development finance?
Many mainstream development lenders require demonstrated experience. First-time developers may need to engage a project manager or development manager with a track record, or consider non-bank and private lenders whose appetite for less experienced developers differs. This is assessed case by case.
What is a pre-sales requirement?
Some lenders require a minimum level of off-the-plan sales (typically secured by legally exchanged contracts with deposits) before committing to a development loan. Pre-sales reduce the lender's risk by demonstrating market demand for the completed product. The required pre-sales coverage varies by lender and project.
How is interest handled during construction?
Interest during construction is commonly capitalised into the loan balance rather than paid monthly, to preserve the developer's cash flow during the construction period. The capitalised interest is part of total project costs and affects feasibility calculations.
What is the difference between a construction loan and a development loan?
Construction loans (used by owner-builders and residential borrowers) and development loans (used by developers) share some characteristics but differ significantly in assessment, structure and lender type. Development loans are assessed on project feasibility and developer experience, not residential serviceability.
Can development finance cover the land purchase?
Some lenders provide combined land and construction facilities. Others require the land to be owned (free of debt or with equity) before the construction facility is established. The availability of a combined facility depends on the lender and the project.
What happens if construction costs exceed the approved facility?
Cost overruns that exceed the approved facility must generally be funded by the developer. This is a key risk in development projects. A detailed quantity surveyor's report and adequate contingency allowance are important in managing this risk. We recommend professional cost control and project management for all development projects.
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General information only — not personal financial or credit advice. All finance subject to lender assessment and approval. Michael Short, Credit Representative 468493 under ACL 389328.