Property Development Finance: A Guide for Developers, From Site to Sale

Most development projects that fail don't fail on the design or the market. They fail on the funding: the wrong lender, too little equity, a feasibility that doesn't survive a valuer's scrutiny, or a construction loan that runs out before practical completion.

This guide walks through how development finance works at each stage of a project, what lenders look for, and how to structure the funding so it carries the project all the way to the last sale.

The Stages of a Development, and How Each Is Funded

The best-funded projects plan every stage before buying the site. A land loan with no clear path to construction finance is how developers end up holding an approved site they can't afford to build.

Stage 1: Buying the Site

Land produces no income, so lenders treat it cautiously. Banks will generally lend less against land than against a completed building, and many won't lend against an unapproved site at all. Non-bank lenders and private credit are more active here, especially for sites without development approval, at a higher cost.

• Equity requirement. Expect to contribute a large share of the purchase price yourself. The lower the planning certainty, the more equity lenders want.
• Holding costs. Interest, rates and land tax accrue every month until construction starts. Many land loans allow interest to be capitalised or prepaid.
• Settlement terms. Options, call options and delayed settlements can buy time to secure approval before you have to fund the full purchase.

For more detail, see land banking and site acquisition finance.

Stage 2: Feasibility and Approval

Your feasibility study is the document every lender will test. Build it as a credit analyst would read it, not as a sales document. The key figures are:

• Gross realisation value (GRV). The total expected sale value of the finished project, excluding GST. Lenders rely on an independent valuation, not your agent's estimate.
• Total development cost (TDC). Land, construction, professional fees, statutory charges, marketing, finance costs and interest, plus contingency.
• Development margin. Profit as a percentage of TDC. Lenders want enough margin to absorb cost overruns or a softer sales market. Many look for around 15 to 20 per cent or more, depending on the project and the risk.
• Contingency. A realistic allowance for cost overruns, typically checked by the lender's quantity surveyor.

If the project only works with optimistic sale prices, a tight build budget and no contingency, it doesn't work. Lenders will stress-test all three. It's better to find the weak point in your feasibility before a credit committee does.

Stage 3: Structuring the Capital Stack

The capital stack is how the total development cost is funded, from the safest layer to the riskiest:

• Senior debt. The construction loan, secured by a first mortgage. The cheapest layer, and the one that sets most of the rules.
• Mezzanine debt. A second-ranking loan behind the senior lender, reducing the equity you need. More expensive, and requires the senior lender's consent and a priority deed.
• Preferred equity. An investor takes a preferred return and ranks ahead of your equity, but behind the debt.
• Developer equity. Your contribution, which ranks last and takes the first loss, but keeps the remaining profit.

Here's an illustrative capital stack for a townhouse project with a TDC of $18 million and a GRV of $21.6 million, giving a development margin of 20%:

Figures are illustrative. Here the senior loan is 65% of TDC and about 54% of GRV, within typical bank limits. Without the mezzanine layer, the developer would need $6.3 million of equity instead of $4.5 million.

Stage 4: The Construction Loan

Construction loans aren't advanced in one go. Your equity usually goes in first. Then the lender funds each stage of the build after its quantity surveyor confirms the work is complete and the remaining budget still covers the cost to finish.

How much lenders will advance depends on who's lending:

• Major banks. Usually 60–70% of TDC or 60–65% of GRV, whichever is lower, with strong pre-sales and an experienced developer and builder. The cheapest option when you qualify. See property development finance with the Big Four.
• Second-tier banks and non-banks. Frequently 70–75% of TDC (sometimes up to 80%) or 65–70% of GRV, with more flexible pre-sale requirements, at a higher cost.
• Private credit. The most flexible on leverage, pre-sales and speed, and the most expensive. Useful for tight timelines or projects outside bank policy. See private credit.

Interest on a construction loan is usually capitalised, meaning it's added to the loan and repaid on completion. That's why interest needs to be properly budgeted in your TDC.

What Construction Lenders Want to See

• Development approval and any conditions that affect cost or timing.
• A fixed-price building contract with a builder of suitable size and track record. Lenders look closely at builder strength, especially after recent builder failures.
• A quantity surveyor's report confirming the budget and contingency.
• An independent valuation supporting GRV.
• Pre-sales or pre-leases. Major banks often want pre-sales covering 100% or more of the debt for residential projects. Non-banks can accept much less.
• Your track record. First-time developers can still be funded, but usually need more equity, an experienced project team, or a non-bank lender.

Can a project be built using bank money alone? It's harder than many developers expect. Read bank-funded construction in 2026.

Stage 5: Completion, Residual Stock and Exit

The construction loan falls due soon after completion. If every unit has sold and settled, sale proceeds repay it. If not, you need a plan for the unsold stock:

• Residual stock loans refinance the remaining construction debt against completed, unsold units, giving you time to sell without discounting.
• Investment refinance suits developers who want to hold and lease some or all of the completed project.
• Pre-sale settlement risk. Some buyers may fail to settle if values fall or their finance falls through. Build that risk into your exit plan.

Common Mistakes Developers Make

• Buying the site before testing construction finance appetite.
• Underestimating holding costs during planning delays.
• Using an under-resourced builder to save on cost.
• Thin contingency, leaving no room for overruns.
• Starting the pre-sale campaign too late for the credit submission.
• Going to one bank, being declined on policy, and assuming the project can't be funded.
• No exit plan for residual stock.

Commercial and Industrial Projects

Commercial and industrial developments follow the same stages, but lenders focus on pre-leases rather than pre-sales, and on tenant quality and lease terms. For more, see industrial land development finance and commercial construction finance in 2026.

How We Help

We work with developers from site acquisition to the final settlement. We test your feasibility the way a credit committee will, structure the capital stack, and tender the project across major banks, second-tier lenders, non-banks and private credit. We also plan the exit, so the construction loan never becomes the problem. Learn more about our property development finance service.

Book a free, no-obligation consultation and we'll review your project and tell you how lenders are likely to see it.