Property Development Finance 2021

Complete your development project with confidence!

Development Finance by Intellichoice Finance

Development finance attracts higher interest rates compared to the traditional home loans. However, this gives you flexibility over your mortgage loan.


Interested in getting a loan? Fast online quotes available here!

Things you really should know before getting started.

Understanding the basic principles of finance can give you a really big head start in obtaining property development finance. Even before this process something that everyone should consider before attempting is this-start with the end in mind.

What this means, is that you really need a good understanding of who will be purchasing this proposed development and at what level of finish/quality and expected rental as investment will be needed to sell out. In other words, you wouldn't be putting platinum taps into a budget townhouse complex, and to show when it goes right, we will offer a client scenario a little later.

The basics of property development finance are loan to value (LVR) ratio, owners' equity or equity held in the land, additional cash flow resources other than pre-sales, marketing and sales costs, development approval (DA), building approvals (BA), preparation of land (headworks), and all the associated professionals fees. These can include feasibility studies, town planning, architectural, building surveyors/certifiers, engineers, finance and in some cases the list goes on.


Why do we mention this?

It is because beginners don't understand the significantly bigger jump from buying land and building or renovating a home or townhouse and can find themselves in hot water quickly, with a lot of money going out before realizing any coming back the other way. This then explains why development finance is not without risks-many moving parts, and why many lenders have a much stricter approach to assessing the capabilities of the developers or sponsors as lenders call them, before offering a loan term sheet.

What are they looking for from sponsors/developers?

They are looking for experienced persons with a previous history or portfolio of successfully completing projects. These don't necessarily have to have been large scale projects at the outset, but will need to show that they can maintain a budget previously and a sellout position that will close out the project for the funder.

Unlike home loan lending, these are short term options generally with the land component held as security and a construction expected to be finished within two years. This therefore requires a detailed feasibility study, which clearly represents all costs considered and potential profitability of the whole project. Having all the associated documents representing the items detailed earlier goes a long way to achieving successful finance or funding options for property development finance.

How will the lender advance funding?

That all depends on how much equity is in the land and how much equity the sponsor will be contributing. This is clearly project dependent and the funder will be looking to see that an agreed level of LVR ratio is met during the course of the staged development if there is going to be stages. Say the development will need to meet a maximum of 60% LVR during the course of the build/development (works), at any particular point then available equity and sponsor’s contribution will need to be evident.

What will be changing in 2021?

There have been many significant changes over the past year and a half. First, with bushfires some of which commenced in August 2019 through January of 2020. Followed by the flooding. Then the Covid-19 from March 2020. This has left many lenders concerned about the state of the housing market.

Ironically, what has happened during Covid-19 episode has been a move by many individuals and couples towards purchasing house and land as opposed to being stuck in a unit during lockdown. This has effectively caused an increase in many areas of the housing market and has meant that construction will likely surge over the coming two years. Therefore, a great time to be developing, particularly given a lull in the property sector for the market for the past several years and the difficulty in obtaining finance for projects.


Now to the example mentioned at the beginning of this page, what follows is from an actual deal-simplified:

  • Land was held worth $2.2 million (M)
  • Land had a debt of $1M
  • Headworks and professional fees $1M
  • Build cost $1.2 M
  • Sale on completion $ 5.2M
  • Net was $ 1M and the original 1M already held as equity.

So in this case one million made for 2+ years work utilising original equity, so it shows what can be achieved from even basic developments when managed correctly.

To discuss with one of our brokers please contact via form or call to make an appointment.

Featured Videos

Videos for Development Finance

You should seek pre approval before entering into a Development Finance arrangement. The reason is simple, building is a complex exercise requiring good co ordination and technical skills.

Articles for Development Finance

Check out some of Development Finance resources and articles.

Frequently asked questions

What is Development Finance?

Development finance is a go-to finance option for construction of residential or commercial development projects. It is a short-term finance solution for projects not exceeding two years.

How does Development Finance work?

A development finance is available for developers who are looking to finance the construction of residential or commercial projects. Applicant developers should have the development plan already laid out with its specifics before applying for their finance option.

How much can I borrow?

The amount that one can borrow totally depends on different things. The total project cost usually dictates the amount one can borrow. The type of development also plays a crucial role in determining the amount--whether it’s a residential or commercial development.

How to maximize your chances of being approved?

It is safe to look for pre-approval before entering a Development Finance arrangement. Pre-approval will give you a thought of what your maximum loan will be, which can enable you to decide whether or not its the correct choice for you.

Who are qualified for development finance loans?

The development finance is available for any developer with valid registration from appropriate agencies./p>

How to apply for Development Finance?

Knowing when and where to apply is crucial. Not all lenders offer this finance option so make sure you are presenting your proposal or application to the right lenders. Knowing what documents to bring and how to present them can be crucial in your application.

About Us

Our mortgage broking is second to none. Don’t waste your time and money running around from bank to bank, sifting through ambiguous loan offers only to find they don’t work. Take advantage of our expertise and let us find the right loan or finance to suit YOUR needs.