Development Finance Australia 2025: Complete Funding Guide for Property Developers

Development Finance in Australia: Your Complete 2025 Guide

The Australian property development finance landscape has transformed dramatically. With major banks retreating from development lending, a $50 billion funding gap has emerged—and private lenders are filling it with faster, more flexible solutions.

Whether you're a first-time developer tackling a duplex or an experienced operator managing a 50-unit apartment complex, this guide covers everything you need to know about securing development finance in 2025.

Key Takeaways

• Development finance rates range from 10-16% p.a. depending on lender type and project risk
• Banks require 60-100% pre-sales; private lenders often accept 0-30% pre-sales

• Approval timeframes: Banks 8-12 weeks, Non-banks 2-4 weeks, Private lenders 3-7 days
• Maximum LVR typically 65-70% of GRV (Gross Realisation Value)

• Construction costs have risen 30.8% since pre-COVID levels

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Current State of Development Finance in Australia (2025)

The Bank Retreat

Australia's Big Four banks have significantly reduced their exposure to property development lending since 2020. Key factors include:

• APRA's capital requirements making development lending less profitable
• Increased provisioning for construction sector risk

• Builder insolvencies in 2022-2024 creating caution
• Focus on lower-risk residential mortgages

According to CBRE's 2025 Australian Debt Report, real estate private credit is currently worth an estimated $50 billion and is projected to grow to $90 billion by 2029.

Who's Filling the Gap?

Lender Type	Market Share	Typical Rate	Approval Time
Major Banks	45%	7-9% p.a.	8-12 weeks
Non-Bank Lenders	30%	9-12% p.a.	2-4 weeks
Private Lenders	20%	12-16% p.a.	3-7 days
Mezzanine/Equity	5%	15-25% p.a.	2-4 weeks

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Types of Development Finance Available

1. Senior Debt (First Mortgage)

The primary funding source for most developments, secured by first-ranking mortgage.

Bank Senior Debt:

• Rate: 7-9% p.a. (variable, tied to BBSY + margin)
• LVR: 55-65% of GRV

• LTC: 65-75% of total costs
• Pre-sales: 60-100% required

• Term: 18-36 months

Private Lender Senior Debt:

• Rate: 10-14% p.a.
• LVR: 60-70% of GRV

• LTC: 70-80% of total costs
• Pre-sales: 0-30% often acceptable

• Term: 12-24 months

2. Mezzanine Finance

Sits between senior debt and developer equity, filling the funding gap.

Typical Terms:

• Rate: 15-25% p.a. (often with profit share)
• Position: Second mortgage or equity injection

• LVR: Up to 80-85% combined with senior debt
• Term: Aligned with senior debt

When to Use Mezzanine:

• Insufficient equity for bank requirements
• Maximising leverage on high-margin projects

• Bridging pre-sales gaps

3. Residual Stock Finance

Funding for completed but unsold units at project end.

Typical Terms:

• Rate: 10-14% p.a.
• LVR: 65-70% of current value

• Term: 6-18 months
• Purpose: Allow orderly sell-down without fire sales

4. Land Acquisition Finance

Funding to purchase development sites before construction.

Typical Terms:

• Rate: 11-15% p.a.
• LVR: 50-65% of land value

• Term: 6-24 months
• Note: Lower LVR reflects planning/approval risk

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Development Finance Requirements

What Lenders Assess

1. The Developer (You)

• Track record and experience
• Financial position and net worth

• Project management capability
• Previous project outcomes

2. The Project

• Feasibility and profit margin (minimum 15-20% on cost)
• Location and market demand

• Planning status (DA approved preferred)
• Construction methodology and timeline

3. The Builder

• Financial strength and insurance
• Track record with similar projects

• Fixed-price contract preference
• Builder's all-risks insurance

4. The Exit Strategy

• Pre-sales status and quality
• Market conditions for remaining stock

• Alternative exit options
• Realistic absorption rates

Documentation Checklist

Project Documentation:
☐ Detailed feasibility study
☐ Development approval (DA)
☐ Construction drawings and specifications
☐ Fixed-price building contract
☐ Project timeline/Gantt chart
☐ Quantity surveyor report

Financial Documentation:
☐ 2 years company/trust financials
☐ Personal financial statements
☐ Tax returns (personal and company)
☐ Evidence of equity contribution
☐ Pre-sale contracts (if applicable)

Legal Documentation:
☐ Title search
☐ Contract of sale (for site purchase)
☐ Company/trust deeds
☐ Builder's insurance certificates
☐ Development approval conditions

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State-by-State Considerations

New South Wales

Stamp Duty:

• Standard rate: 5.5-7% on commercial transactions
• Foreign purchaser surcharge: Additional 8%

• Transfer duty on development sites can significantly impact feasibility

Planning Considerations:

• Complying development options for smaller projects
• State Significant Development pathways for major projects

• Design excellence requirements in key precincts

Market Dynamics (2025):

• Sydney median house price: $1.4 million
• Strong apartment demand in middle ring suburbs

• Infrastructure-led growth in Western Sydney

Victoria

Stamp Duty:

• Standard rate: 5.5% (with surcharges for foreign purchasers)
• Windfall gains tax on rezoning (applies from 2024)

Planning Considerations:

• Plan Melbourne framework guides development
• Activity centre focus for medium-density

• Better Apartments Design Standards compliance

Market Dynamics (2025):

• Melbourne recovery from 2022-2024 corrections
• Strong regional interest (Geelong, Ballarat)

• Build-to-rent opportunities emerging

Queensland

Stamp Duty:

• Lower rates at 4.5-5.5%
• Less initial equity required than southern states

Planning Considerations:

• Council-specific planning schemes
• State assessment for larger projects

• Flood and coastal hazard considerations

Market Dynamics (2025):

• Strong population growth from interstate migration
• Olympic 2032 infrastructure investment

• Southeast Queensland corridor opportunities

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The Application Process

Step 1: Prepare Your Feasibility (Week 1)

Your feasibility study must demonstrate:

• Minimum 15-20% return on cost for bank approval
• 20-25% for private lenders (higher risk tolerance)

• Realistic construction costs (use QS report)
• Market-appropriate end values

Step 2: Identify Appropriate Lenders (Week 1-2)

Match your project to lender appetite:

• Banks: Established developers, strong pre-sales, metro locations
• Non-banks: Experienced developers, moderate pre-sales, good locations

• Private lenders: Speed required, complex situations, regional areas

Step 3: Submit Application (Week 2-3)

Bank Applications:

• Full documentation package required upfront
• Credit committee review process

• Multiple approval layers

Private Lender Applications:

• Indicative terms often within 24-48 hours
• Valuation commissioned on preliminary approval

• Faster credit decisioning

Step 4: Due Diligence and Valuation (Week 3-6)

Lenders will commission:

• Independent valuation (as-is and as-if-complete)
• Quantity surveyor verification

• Builder financial review
• Legal due diligence on title and approvals

Step 5: Approval and Documentation (Week 4-8)

Typical Approval Timeframes:

• Major banks: 8-12 weeks
• Non-bank lenders: 3-6 weeks

• Private lenders: 1-2 weeks

Step 6: Settlement and First Drawdown

Construction facilities are drawn progressively:

• Initial drawdown for land settlement
• Progress drawdowns against QS certificates

• Typically monthly or milestone-based

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Cost Comparison: Bank vs Private Development Finance

Example: $10 Million Apartment Project

Scenario:

• Total Development Cost: $10 million
• Gross Realisation Value: $13 million

• Loan Amount Required: $7 million (70% LTC)
• Construction Period: 18 months

Bank Finance:

Cost Component	Rate/Amount
Interest rate	8.5% p.a.
Interest cost (18 months)	$892,500
Establishment fee (0.5%)	$35,000
Line fee (0.3% p.a.)	$31,500
Total finance cost	$959,000

Private Finance:

Cost Component	Rate/Amount
Interest rate	13% p.a.
Interest cost (18 months)	$1,365,000
Establishment fee (2%)	$140,000
Total finance cost	$1,505,000

Cost Difference: $546,000 (additional 5.5% of loan)

But Consider:

• Bank approval: 12 weeks minimum
• Private approval: 7 days possible

• If the site has competition, speed may justify cost
• If pre-sales insufficient for bank, private is only option

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First-Time Developer Guide

Starting Your First Project

Recommended First Projects:

• Duplex or triplex developments
• Single house knockdown-rebuild

• Small lot subdivision (2-4 lots)
• Unit renovation/strata subdivision

Building Your Track Record:

• Start small - Complete 2-3 smaller projects
• Document everything - Photos, financials, outcomes

• Build relationships - Builders, lenders, agents
• Prove profitability - Show actual vs projected returns

First-Time Developer Lending Criteria

Most lenders require first-timers to demonstrate:

• Relevant industry experience (building, real estate, construction)
• Strong personal financial position

• Conservative project scope
• Experienced project manager or builder partnership

• Higher equity contribution (30-40% vs 20-30% for experienced)

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Risk Management

Construction Risks

Builder Insolvency:

• Verify builder financial strength
• Check insurance coverage limits

• Consider builder bonds for larger projects
• Include contract clauses for substitution

Cost Overruns:

• Build 10-15% contingency into budget
• Use fixed-price contracts where possible

• Monitor progress claims carefully
• Regular QS verification

Program Delays:

• Weather and site condition allowances
• Material supply contingencies

• Approval condition completion timelines
• Extension provisions in loan facility

Market Risks

Price Corrections:

• Conservative end values in feasibility
• Pre-sales reduce exposure

• Exit strategy alternatives (hold and rent)
• Stress testing at lower values

Interest Rate Movements:

• Budget for rate increases
• Consider interest rate caps

• Monitor RBA movements
• Build buffer into serviceability

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Tax and GST Considerations

GST on Property Development

Key Points:

• GST applies to new residential property sales
• Margin scheme can reduce GST on land component

• Input tax credits available for construction costs
• Complex rules for mixed-use developments

Example - Margin Scheme:

• Site purchased for $2 million (no GST claimed)
• Completed value $5 million

• Standard GST: $5M ÷ 11 = $454,545
• Margin scheme: ($5M - $2M) ÷ 11 = $272,727

• Saving: $181,818

Income Tax

Key Considerations:

• Trading stock vs capital asset treatment
• Profit recognition timing

• Company vs trust vs personal structures
• Loss utilisation strategies

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Frequently Asked Questions

What deposit do I need for development finance?

Most lenders require 20-35% equity contribution. Banks typically require 30-35%, while private lenders may accept 20-25% for experienced developers with strong projects.

Can I get development finance with no experience?

Yes, but expect stricter criteria. You'll need a larger equity contribution (35-40%), an experienced builder or project manager, and possibly a mentor or JV partner with development experience.

How long does development finance approval take?

Major banks: 8-12 weeks. Non-bank lenders: 2-4 weeks. Private lenders: 3-7 days. Timeframes depend on documentation completeness and project complexity.

What happens if my project runs over budget?

Lenders typically require contingency (10-15%) in your budget. If genuine overruns exceed contingency, options include additional equity injection, mezzanine finance top-up, or scope reduction.

Do I need pre-sales for development finance?

Banks require 60-100% pre-sales for apartment projects. Non-bank lenders may accept 30-50%. Private lenders often fund with zero pre-sales, relying on end value and developer equity.

What's the minimum project size for development finance?

Most development finance starts around $1-2 million total project cost. Smaller projects (under $500k) are often funded through residential construction loans or personal facilities.

Can I use equity in other properties for development finance?

Yes, cross-collateralisation is common. Lenders may accept equity in other properties to reduce the cash deposit required, though this increases your overall risk exposure.

What are the differences between residual stock loans and development finance?

Development finance covers construction. Residual stock finance is for completed but unsold properties. Residual loans typically have lower rates (10-14%) and shorter terms (6-18 months) than construction facilities.

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Getting Started with Development Finance

Ready to fund your development project? Here's your action plan:

• Complete your feasibility - Ensure minimum 15-20% profit margin
• Gather documentation - Use our checklist above

• Assess lender options - Match your project to lender appetite
• Compare offers - Get quotes from multiple sources

On Introducr, property developers can post funding requests and receive competitive offers from verified lenders within 48 hours. Compare development finance options, mezzanine providers, and residual stock lenders all in one place.

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Disclaimer: This information is general in nature and does not constitute financial advice. Development finance is complex and project-specific. We recommend consulting with qualified financial and legal professionals before proceeding with any development project.

Last updated: January 2025