Finance for property development, from site to sale

Development projects rarely fail because the idea was bad. More often the money runs out between stages: the approval takes longer than planned, the build contract grows, or the last two lots sit unsold while the facility falls due. Thinking about finance as a sequence, rather than one big loan, is the single most useful habit a developer can build.

This page follows a typical small to mid-sized project (a duplex, a row of townhouses, a small subdivision or a modest commercial building) through each stage and shows what tends to fund it.

Which stage is the money for?

Lenders price each phase by its risk. Vacant land with no approval is risky; a finished, saleable townhouse is much less so. That’s why the funding changes as the project moves.

Stage	What’s being paid for	Finance that usually fits	What lenders want to see
1. Site acquisition	Land, duty, legal costs	Your equity, a land loan, or equity in other property	Valuation, zoning, your contribution, a plan for approval
2. Design and approval	Architects, engineers, planners, council fees, reports	Mostly your own cash or a facility over other property	Hard to fund against the site alone
3. Construction	The build, consultants, site costs, capitalised interest	Development finance drawn in stages	Approval, fixed-price contract, QS report, presales or a strong end value
4. Completion and sale	Selling costs, holding costs, unsold lots	Sale proceeds, or a residual stock loan	Strata or subdivision titles, valuations of finished stock

The gap most first-time developers underestimate is stage 2. Until there’s an approval, the site is still just land, and lenders won’t advance much against design costs that may never become a building. Many developers fund this stage from their own cash, a line of credit, or borrowing against equity in a house or investment unit they already hold.

How do lenders size a development facility?

Two measures sit at the heart of every development credit decision.

Loan-to-cost. The facility as a share of total project cost, including land, construction, fees, contingency and interest. The loan-to-cost ratio tells the lender how much developer cash sits underneath its loan and therefore how much the project can go wrong before the lender is exposed.

Loan to gross realisation value. The facility as a share of what the finished project should sell for, usually set by an independent valuer. This tests whether there’s enough margin between debt and end value to absorb a soft market.

Lenders apply both and lend the lower of the two results. They then look at:

• Presales. Signed contracts with deposits, as a share of the debt. Banks lean on them heavily; non-bank and private lenders less so.
• The builder. Licence, financial strength, track record and a fixed-price contract.
• A quantity surveyor. Independent review of the budget at the outset and of each progress claim during construction, so money is released only for work actually done.
• Contingency. A buffer in the budget for the things that go wrong. Lenders read a thin contingency as a warning.
• The developer. Experience, other assets and liabilities, and how much equity is genuinely at risk.

Planning the stages for a project now? Run it past us in a short enquiry. Roughly a minute to fill in, and no credit enquiry is lodged against you.

How does money flow during the build?

Development finance doesn’t arrive as a lump sum. After the developer’s equity is spent first (lenders almost always require this), the lender releases funds in progress draws as the builder claims for each completed stage. The quantity surveyor inspects, certifies the claim, and the lender pays the builder directly or through the developer.

Interest is usually capitalised: added to the balance each month rather than paid from income the project doesn’t yet have. It’s real money, though, and it compounds. A project that runs six months late carries six extra months of capitalised interest, plus holding costs and any extension fees. That’s one reason sensible feasibilities include time contingency as well as cost contingency.

Our development finance versus construction loan comparison explains how this differs from a simple owner-builder construction loan.

What GST does to a developer’s cash flow

Most developers expect to deal with GST on their sales. Fewer plan for the way it’s collected on new residential premises.

Since 1 July 2018, purchasers of new residential premises and potential residential land generally withhold part of the price and pay it directly to the ATO at settlement. The amount is one-eleventh of the price for a fully taxable sale, or 7% of the price when the margin scheme applies. The developer still reports the sale on its BAS, and the amount the buyer paid is credited against the developer’s GST liability.

What that means in practice:

• Settlement proceeds are lower than the contract price. The withheld GST never reaches your trust account, so your lender’s payout figure must be based on the net amount.
• On a margin scheme sale, the 7% can exceed the GST actually owed. The margin scheme lets eligible sellers pay GST on the margin rather than the full price, where the land was bought in a way that qualifies. If the true liability is lower than 7% of the price, the difference comes back through the BAS process, not on settlement day.
• The margin scheme must be agreed in writing with the buyer before settlement. That needs to be in the sale contracts from the start.

Get your accountant involved before contracts are drafted, not after. Lenders will also want to see that the feasibility uses after-GST sale figures.

Worked example: three townhouses in suburban Adelaide

This is an illustration, not a real project. A builder-developer buys a 900m² block in an established Adelaide suburb with a single old house, planning to demolish it and build three townhouses.

Item	Amount
Land and duty	$950,000
Design, consultants, approval and demolition	$160,000
Construction (fixed-price contract)	$1,500,000
Contingency	$120,000
Capitalised interest and lender fees	$230,000
Selling costs	$90,000
Total development cost	$3,050,000
Expected sales (gross realisation value, net of GST)	$3,600,000

The developer buys the land with $350k cash and a land loan of $600k from a non-bank lender. Design and approval costs come from a separate line of credit secured against the family home. Once the approval arrives, a development lender refinances the land loan and funds construction, with total debt of around $2.25m. That’s roughly 74% of total cost and 63% of expected end value, with the developer’s land equity and approval costs counted as their contribution.

One townhouse is presold off the plan before construction starts. By completion, a second has sold. Rather than discount the third into a slow market, the developer refinances it into a residual stock loan for nine months, sells it in spring, and repays the facility from the proceeds.

Mistakes that sink small developments

• Leaving no money for stage 2. If approval costs drain your cash, there’s nothing left for the equity contribution the construction lender requires.
• Using sale prices including GST. The buyer’s withholding means the full price never reaches you.
• Treating contingency as profit. It’s there because something will go wrong.
• Ignoring time risk. Delays add interest, holding costs and sometimes extension fees.
• Assuming the end facility will be there. Line up your exit, whether sales, a residual stock loan or a long-term hold, before you start digging.

Bring us the project, stage by stage

Developers come to us at every point in the process: holding a site and looking for approval funding, with a DA in hand and a builder ready, or at completion with stock that needs more time to sell. Many have been told no by a bank because of presales, experience or timing.

The enquiry is a sixty-second job, and nothing about it shows up on your credit report. We won’t scatter your project across every lender in the country; a single team keeps it. A real person reviews the numbers and rings you to talk about where the project is and what it needs. Be precise about the site, the stage you’re at, the costs and the end values, so we can put the right type of funding in front of you first time.

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