Development finance
Development finance: from site to settlement, funded in stages.
Development funding is its own discipline: land, construction drawdowns and the exit all financed against a project that doesn't exist yet. Banks fund the conservative end; private and non-bank lenders fund the rest, at prices that make lender choice the biggest number in your feasibility.
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- Site acquisition, construction facilities, residual stock and bridging
- Bank, non-bank and private funding compared: the rate spread is enormous
- Small to mid-scale focus: duplexes, townhouses, small subdivisions and unit sites
How development facilities work.
Lenders typically fund a percentage of total development cost (commonly 65-80% TDC) or of end value (55-65% GRV), drawn in stages against QS-certified progress. Interest usually capitalises into the facility (no repayments during the build), with the loan cleared by sales or refinance at completion. Presales requirements are the big fork: banks want them, many non-banks don't, and the pricing reflects it.
What makes a fundable project.
The feasibility gets funded when it shows:
- Realistic end values with comparable evidence (the valuer will check)
- A contingency that survives contact with a builder (10%+ of construction)
- A capable builder with capacity (lenders assess them as hard as you)
- A clear exit: presales, a hold-and-refinance plan, or residual stock strategy
The funding stack, from senior debt up.
Most projects are funded in layers. Senior debt does the heavy lifting: typically 65-80% of total development cost from a bank or non-bank, secured first against the site. Above it sits your equity, and sometimes mezzanine debt or preferred equity filling the gap between what the senior lender will advance and what you have, at materially higher pricing. Costs run beyond the interest rate: establishment fees, line fees on the facility limit, valuation and QS costs, all of which belong in the feasibility rather than arriving as surprises.
The stack is a design decision. More mezzanine means less of your own cash but thinner margins and less room for error; more equity means the reverse. We price the versions side by side so the choice is deliberate.
A worked example: four townhouses in Brisbane.
An example with checkable arithmetic. Total development cost is $4,000,000: site $1,400,000, construction $2,200,000, and consultants, interest and costs $400,000. A facility at 70% of TDC funds $2,800,000, leaving $1,200,000 of equity to come from you: cash, equity in the site if you already own it, or a partner.
If the four townhouses are worth $1,300,000 each on completion ($5,200,000 gross realisation), the facility also passes the end-value test at roughly 54% of GRV, comfortably inside typical limits. Change any assumption (build cost up, end values down) and both tests move; that sensitivity is exactly what we stress before a lender ever sees the deal.
The process: feasibility to first drawdown.
Development finance is a project inside your project. The sequence:
- Feasibility review and funding strategy: bank versus non-bank, presales or not, the shape of the stack
- Indicative terms from shortlisted lenders (days to a couple of weeks)
- Valuation (as-is and on-completion) and quantity surveyor report: the pacing items
- Credit approval and documentation: non-banks commonly land inside a month, banks run longer
- Settlement, then monthly drawdowns certified by the QS as construction progresses
Common development finance mistakes.
Margins die by a thousand small optimisms. The recurring ones:
- End values set by hope rather than comparable sales: the valuer finds the truth anyway
- Contingency under 10% of construction cost, then the first latent condition eats it
- A builder priced cheap but without the capacity or balance sheet lenders will accept
- No plan B on the exit: if sales stall, is there a residual stock refinance or a hold strategy?
- GST and margin scheme treatment left to the end instead of priced into the feasibility
- Running personal cash to zero before the facility's first drawdown
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Frequently asked questions.
Do I need presales?
For bank funding, usually yes, often debt cover of 60-100% in presales. Non-bank and private lenders frequently require none, at higher rates. Whether paying more for no presales beats waiting for presales is a feasibility question we model both ways.
What experience do lenders want?
First projects are fundable: at lower gearing, with a strong builder and often a development manager. Track record unlocks better terms with each completed project; the file should present whatever experience exists (trades, renovations, related industries).
What does development finance cost?
Banks price lowest but gear conservatively with presales; non-banks run roughly 2-5% higher with more flexibility; private funding higher again for speed and edge cases. On most projects the right lender choice moves the feasibility more than any other line item.
What's a residual stock loan?
Finance against completed unsold stock at the end of a project, clearing the construction facility so you can sell in an orderly market instead of a fire sale, or hold and rent. Often the difference between a stressful exit and a profitable one.
How much equity do I need for a development?
With senior debt at 65-80% of total development cost, plan on funding 20-35% of TDC yourself. Equity doesn't have to be cash: a site you already own contributes at its current value, and uplift from an approval you've secured counts with many lenders. Mezzanine funding can shrink the cash further, at a price that has to earn its place in the feasibility.
Does land I already own count as equity?
Yes, and it's the most common way developers gear up: the site goes in at valuation (including uplift from approvals you've won), and the facility funds construction on top. If the site carries debt, the new facility usually refinances it too. It's why buying the site well, and getting the DA, is half the funding battle.
What does the quantity surveyor do on my facility?
The QS is the lender's independent eyes on cost: they verify the budget up front and certify each month's construction claim before funds are released. Drawdowns are paid against QS certificates, not builder invoices alone. A realistic budget that survives the initial QS review sets the whole facility up to run smoothly.
How long does development finance approval take?
Non-bank lenders commonly move from complete file to approval within two to four weeks; banks often take longer, particularly with presale hurdles to evidence. The valuation and QS report are usually the pacing items, so we commission them early. From first conversation to first drawdown, one to three months is a realistic planning window.
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