A Practical Guide to Property Development Finance

Property development credit remains selective, and requirements can vary widely between lenders. This guide explains how development facilities are typically structured and what a lender-ready submission looks like for small to mid-sized residential projects.

What development lending actually covers

For townhouse, duplex and boutique multi-unit projects, funding is usually assessed on project feasibility rather than personal income alone. The lender wants to know whether the numbers work, including total development cost, projected end value, expected margin and the credibility of the exit strategy. Reliable pre-construction cost estimates matter at this stage, because a feasibility built on soft numbers tends to unravel once construction starts.

Switchboard Finance, a specialist broker in this market, describes development finance as feasibility-led funding provided through staged drawdowns. A quantity surveyor usually verifies progress, while interest may be capitalised into the facility. Some structures also use mezzanine debt to bridge a gap between senior debt and the developer’s equity. Terms and lending mechanics differ across the market.

The numbers lenders use: LTC and GRV

Two ratios drive most lending decisions. Loan-to-cost (LTC) expresses the facility as a percentage of the total development cost, including land, construction, professional fees, holding costs and contingency. Gross realisation value (GRV) is the projected value of the completed project, usually before selling costs and GST.

The developer’s equity requirement depends on which lending limit applies first. As an illustration, a Switchboard Finance FAQ notes that many non-bank senior facilities sit at about 65% to 80% of LTC, or up to roughly 65% to 70% of GRV. Published policies vary, and some lenders apply additional caps based on total development cost or property value.

Treat published ratios as illustrations, not guaranteed benchmarks. Available leverage depends on the lender, project type, location, builder, exit strategy and developer’s track record.

Staged drawdowns and progress claims

Construction funding is generally not advanced as one lump sum. Instead, the lender releases progress payments as defined stages of work are completed. Westpac and CBA construction-loan guidance describes staged payments, with inspections or supporting documentation required before release.

Specialist development facilities usually apply more formal cost controls. A quantity surveyor reviews the builder’s progress claim, verifies the work completed and confirms the estimated cost to finish the project. The lender then uses that report when deciding whether to release the next drawdown. This mirrors construction-progress controls described in Westpac and CBA guidance.

Interest is often charged only on funds already drawn, which can limit early holding costs. However, delays may increase the capitalised interest balance and reduce the contingency available for the rest of the project. The timing of each drawdown should therefore be reflected in the feasibility and construction program.

Pre-sales after APRA’s 2025 clarification

Pre-sales remain a widely misunderstood part of development lending. In its letter dated February 13, 2025, the Australian Prudential Regulation Authority (APRA) confirmed that it does not set a minimum pre-sales requirement for residential development lending. A reference in earlier correspondence to pre-sales covering debt was an observation of industry practice rather than a regulatory rule.

Pre-sales requirements are therefore set by individual lenders. APRA’s Prudential Practice Guide APG 112, issued in October 2024, directs authorised deposit-taking institutions to define qualifying pre-sales and consider factors such as deposit size, arm’s-length contracts and buyer concentration. In practice, requirements differ between bank, non-bank and private credit products and may change with market conditions.

Who actually lends

Banks generally offer lower pricing but apply tighter conditions. These may include stricter pre-sale thresholds, builder requirements, interest cover tests and evidence of committed developer equity.

Non-bank and private credit lenders may offer greater flexibility or faster decisions, usually at a higher overall cost. However, not every commercial lender funds construction or development projects; for projects outside major-bank policy, Development finance may be a commercial pathway. Confirm basic policy settings early, including acceptable locations, project size, property type, builder profile and maximum leverage, before preparing a full application.

Plan the exit before you draw

Most development facilities are repaid from property settlements after completion, so the exit strategy forms part of the initial credit decision. A sale-led exit should use realistic prices and absorption rates supported by recent comparable evidence, not only the assumptions needed to make the feasibility work.

If the plan is to retain some or all of the completed properties, model a refinance into an appropriate investment or commercial term facility. Test the refinance against current lending rates, valuation assumptions and servicing requirements. The RBA cash rate was 4.35% effective August 12, 2026; refresh feasibility assumptions against current RBA settings and ABS Building Approvals, Australia data.

A residual stock facility may suit the middle ground. It refinances completed but unsold dwellings after practical completion, allowing the original development debt to be repaid while the remaining properties are sold in a more orderly way.

Cash-flow details developers overlook

Under Australia’s GST-at-settlement rules, purchasers of new residential premises generally withhold an amount from the purchase price and pay it directly to the Australian Taxation Office at settlement. The developer reports the transaction through its business activity statement and receives credit for the amount withheld. Because the full sale proceeds do not arrive in the developer’s account, this timing and cash-flow effect should be modelled carefully.

Other commonly underestimated costs include capitalised interest, especially when construction or settlements are delayed, and professional fees such as the quantity surveyor’s initial report and ongoing progress certifications.

Lender-ready checklist

Development approval and, where possible, a fixed-price building contract
A detailed feasibility showing total development cost, GRV, margin and contingency
Builder credentials, licence, insurance and recent comparable projects
A pre-sales strategy and copies of executed contracts and deposit evidence
A documented exit through sale, refinance or residual stock funding
Evidence of the developer’s equity and the source of those funds
An initial quantity surveyor report and a schedule of progress claims

When a specialist broker helps

A specialist broker can be useful when a project involves multiple ownership entities, a builder-developer structure, a mid-construction refinance or a timetable that does not suit a standard bank process. The broker should first identify which lenders accept the project type, location, requested leverage and proposed exit.

If a project falls outside major-bank policy, a specialist non-bank development finance facility may combine quantity surveyor-verified drawdowns, capitalised interest and mezzanine funding where appropriate. Switchboard Finance can help assess structures of this kind and compare them with the project’s build schedule and exit plan. The facility should still be reviewed on its pricing, fees, conditions, drawdown controls and default provisions.

Closing note

Leverage, pre-sale expectations and drawdown requirements vary by lender and market conditions. Stress-test the feasibility against higher interest costs, construction delays and slower sales, then confirm the assumptions with potential lenders before committing to the project. This article provides general information, not financial advice. Seek advice from a licensed credit adviser or broker about your circumstances.