Property development is capital heavy. The structure of your funding can determine whether a project delivers strong returns or simply absorbs equity.
In Australia, property development loans are specialised facilities designed to fund land acquisition, construction and project delivery. They are assessed on feasibility, risk and exit strategy which is not just borrower income.
Understanding how property development finance works is critical before signing contracts or committing capital.
What Are Property Development Loans?
Property development loans are short to medium-term facilities used to fund:
- Site acquisition
- Construction costs
- Consultant and professional fees
- Interest and holding costs
- Completion and exit
Unlike standard residential mortgages, property development loans are structured around the project itself.
Lenders assess:
- Total Development Cost (TDC)
- Gross Realisation Value (GRV)
- Loan-to-Cost ratio (LTC)
- Loan-to-Value ratio on completion
- Profit on cost
- Presales (where relevant)
- Builder strength
- Exit strategy
Funds are drawn progressively during construction and monitored by an independent quantity surveyor.
This is controlled, milestone-based lending which is not flexible retail credit.
How Property Development Finance Is Structured
Effective property development finance is layered.
Most projects are funded through a capital stack that includes:
Equity
Cash and/or land value contributed by the developer.
Senior Development Loan
The primary debt facility, typically funding 60–75% of total development cost depending on risk profile.
Mezzanine Finance (if required)
Second-ranking debt used to enhance leverage. Higher cost and suitable only where feasibility margins are strong.
The structure of property development finance directly impacts return on equity. Over-leverage increases risk and reduces flexibility.
Types of Property Development Finance in Australia
There is no single product called “development finance.” The term covers several funding solutions.
Site Acquisition Finance
Short-term property development loans used to secure land prior to construction.
Construction Loans
The core property development finance facility. Funds are released in stages against a fixed-price building contract.
No-Presales Development Loans
Some lenders offer property development finance without strict presale requirements, depending on scale and risk.
Mezzanine Development Finance
Supplementary capital to reduce upfront equity contribution.
Residual Stock Loans
Refinance solutions for unsold stock at project completion.
Selecting the right structure is often more important than negotiating the lowest rate.
Who Provides Property Development Loans in Australia?
The Australian property development finance market includes:
Major Banks
Lower pricing but conservative policy. Often require presales for multi-dwelling projects.
Non-Bank Lenders
More flexible structures and faster decisions. Pricing reflects higher risk tolerance.
Specialist Development Capital Providers
Structured funding solutions across senior and mezzanine layers for projects outside traditional bank policy.
Each lender category plays a role within the property development finance market.
What Lenders Look For in Property Development Finance Applications
Approval is driven by risk assessment.
Key considerations include:
Feasibility Margin
A realistic profit on cost with contingency allowances.
Equity Contribution
Developers must demonstrate meaningful capital at risk.
Cost Certainty
Fixed-price building contracts significantly improve approval prospects.
Market Evidence
Comparable sales and realistic absorption assumptions.
Exit Strategy
Clear sell-down or refinance plan.
Strong documentation and disciplined modelling increase approval speed and improve loan terms.
The Real Cost of Property Development Finance
The headline interest rate on property development loans is only one component of total cost.
Developers should factor:
- Establishment fees
- Legal costs
- Valuation and quantity surveyor fees
- Monitoring fees
- Line or commitment fees
Accurately modelling the full cost of property development finance at feasibility stage protects project margin.
Current Conditions for Property Development Loans in Australia
The development finance market remains active but selective.
- Construction costs remain elevated.
- Valuers are conservative.
- Lenders prioritise disciplined leverage.
Well-structured projects with realistic margins continue to secure property development loans.
Speculative, thin-margin developments face tighter credit conditions and higher pricing.
Strategic Considerations Before Applying
Property development loans should be structured early which is ideally before contracts become unconditional.
Early engagement allows:
- Stress testing feasibility assumptions
- Optimising capital structure
- Aligning lender requirements with project timeline
Capital is available in Australia.
It flows to projects where risk is understood, margins are defensible and structure is disciplined.
