How to secure property development financing

Property development loans help developers to finance new development projects. The finance can cover the start-up costs, like acquiring the land, and consulting with architects and environmental agencies, but is more often used to finance the actual construction phase.

Development loans in Australia are often granted for:

Townhouse developments
Apartment blocks
Land subdivisions
Commercial or industrial projects

Anyone starting a new development project, or needing funds to complete a development project, could apply for development financing.

What is property development finance?

Development finance is funding for property development, which could include residential or commercial developments like constructing townhouses or industrial parks.

Like a traditional mortgage, development loans are secured over property or land
Unlike a traditional mortgage, the developer doesn’t need to make monthly repayments
The funding is only expected to last as long as the development project, which could be six months to a few years
The lender may issue the funds as needed, rather than in a single lump sum
Once the development is complete, the developer is expected to settle the loan in full

If the developer can’t settle the property development loan once the project is completed, the developer may need to take out other types of finance to settle the balance of the development loan.

For example, if a developer builds an apartment with six units but only sells two, the developer could use bridging finance to tide themselves over until the remaining four units can be sold, or even get a home loan to buy the units.

Where do I get property development finance?

A finance broker can help you get property development finance in Australia.

Alternatively, you can:

Apply to a bank or a non-bank lender that offer loans for property development
Apply for finance from a private lender, which may be a trust, high-net-worth individual, managed fund or family office

How do I secure development finance?

To secure development finance, you would need to prove to the lender that the project is viable by completing a feasibility study.

Before lenders grant property developer loans, they need to know more about the project they’re being asked to support, including:

The type of project – e.g. an apartment block or townhouse complex
Details about the land the project is being developed on – e.g. whether you already own the land or need to buy it as part of the project
Proof that the land is zoned appropriately
Council approval – or if you can’t get that yet, any reports you need for council approval, like environmental impact reports
The cost of the development and when the costs are due
How much funding is needed and how the funds will be spent
Architectural plans
Artist illustrations of the completed project and marketing brochures
What contingencies you’ve provided for
The duration of the project
The expected profit

Lenders may also want to know who they’re dealing with. They may ask you to explain:

Who will be managing the project
Your skills and experience
Your financial status, including income, assets and liabilities

Once you have all this information, you can present it to a lender and apply for either a residential or commercial development loan.

Crowd Property Capital is a specialist development finance broker and can help you apply for development finance. Talk to us if:

You’re starting a development project and need finance
You’ve drawn up a detailed plan of the development
You know how much financing you need and how you’ll use it
You need someone to check if your proposal includes all the necessary information a lender will need to grant you finance
You need expert advice and want to know what your options are

To discuss your property development finance options, get in touch with David Lovato.

Phone: 0434 932 634
Email: [email protected]

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Frequently asked questions

How is property development financed?

Property development is normally financed in the form of business loan between the development company (borrower) and the lender. The loan facility limit is agreed upfront and paid out in instalments, not in a lump sum as the development is constructed.

The benefit of this approach is twofold and works for both parties. For the borrower they are only charged interest on the funds they have drawn down this saving in finance costs. For the lender they are only financing the progressively built form once the materials are fixed in place so they are assured the funds are being used for their intended purpose.

How can I apply for development finance?

The easiest way is to contact a specialist development finance broker who can manage your application and make enquiries with several lenders to determine appetite within the market for your project.

Alternatively, you can apply directly to a bank, non-bank lender or a private lender that offers development finance.

Where can I get funding for property development?

A finance broker can help you secure funding from a bank, non-bank lender or a private lender. In dealing with any of these lenders it is essential that you understand the lenders source of funds and track record of lending.

What deposit (equity) will I need for property development finance?

The deposit or developer equity will depend on the lender and type of project, but usually is approx. 20% of the projects total costs (including the cost of the land) depending on the size of the project and whether it’s residential or commercial.

Will banks lend to property developers?

Yes, some banks will, although many have exited the construction lending sector since the Global Financial Crisis. To obtain bank finance you will need to be financially strong and willing to navigate numerous bank policies and loan conditions to obtain an approval.

What are pre-sales?

Pre-sales or “off the plan sales” are sales a developer makes before or during construction. For example, if a developer is developing townhouses, they can start selling them as soon as they have a DA approval, plans, marketing brochures and a sales contract.

The benefit of securing pre-sales is that it makes it easier for the developer to secure finance, by proving to the lender that the project is viable because buyers are already interested.

When will I receive the funds?

Unlike with a land or home purchase, the developer will receive the funds progressively when financing a property development.

For example, if you’re building an apartment block, a lender will engage a Quantity Surveyor (QS) certify the progress of the project and draw down funds to pay the builder on a monthly basis.

The quantity surveyor will always attend site towards the end of the month and let the lender know when the next funding instalment can be released. They will also adjudicate on any additional costs that are claimed by the builder during construction.

What types of finance are available?

Senior Debt – in the form of loans that require you to repay the loan with interest out at the end of the project from settlement proceeds.
Junior Debt (Mezzanine) – in the form of loans that require you to repay the loan with interest.
Equity – where the lender takes a share of the development company as compensation
Preferred equity – where the lender receives their loan repayment first, and then the preferred equity gets paid out ahead of the developer receiving their funds and profits.

Legal & Compliance

Crowd Property Capital Pty Ltd (CPC)

A registered company under the Corporations Act 2001, ACN 600 539 544

An accredited member of the Finance Brokers Association of Australia (FBAA) Member No M-352808

A licensed Corporation under the Property, Stock and Business Act 2002, Corporation License No. 10065109.

A member of the Real Estate Institute of NSW (REINSW)

David Lovato (Sole Director) holds a Certificate IV in Finance and Mortgage Broking and Property Services (Real Estate Agents License No 201 604 57 )