Land holding costs are the recurring costs of owning a site before it produces income: council rates, land tax, insurance, maintenance, and the interest on any money borrowed against the land. They run every month from settlement until the finished product settles or leases, and because a bare site earns nothing, they come straight out of equity or a reserved interest account. On most feasibilities the two biggest are usually the interest carry and land tax, and both scale with time, so every month of planning delay or slow pre-sales adds to them.
They matter because they hit margin in a way that headline costs do not. A construction cost is a known number you price and manage. A holding cost is a meter that keeps running whether the project moves or not. Developers who model land holding costs from the day of settlement, across the real timeline rather than an optimistic one, tend to price land more sensibly and get fewer nasty surprises at the back end. This guide covers what counts, how to estimate each part, how land tax works in every state and territory and in New Zealand (NZ), and whether you can claim any of it back through the tax system.
What counts as a land holding cost in a development?
A land holding cost is any recurring cost of owning the site through the period before it produces income. The usual line items are council rates, land tax, building and site insurance, maintenance and security, owners corporation or body corporate levies where the site is a strata lot, and the interest on borrowings secured against the land.
It helps to split these into two groups, because they behave differently in a feasibility. The first group is the site outgoings: rates, land tax, insurance and maintenance. These are charges you pay for owning and keeping the land, and they generally continue regardless of how the project is funded. They recur across the pre-construction period rather than landing as a single lump, so model them as a cost that repeats month by month over the holding term rather than a one-off charge.
The second group is the interest carry: the cost of the money borrowed to buy and hold the land. This is a funding cost, not a site outgoing, and it is usually the larger of the two. It depends on how much you have drawn, the rate, and how long the balance stays outstanding, so it is modelled in the funding stack rather than the outgoings bucket. The distinction matters when you are reading a feasibility, because the interest line and the land holding line answer different questions: one is “what does the debt cost”, the other is “what does simply owning the dirt cost”.
Both groups feed the same place in the end. They roll into total development cost, and they show up in the development cashflow as outflows spread across the months you hold the site. The longer the hold, the larger the pile.
Why do land holding costs hurt a development margin more than other costs?
Because they accrue before there is any revenue to offset them, and they grow with time rather than with what you build. On a completed rental property, rates and interest are at least partly covered by rent. On a development site sitting through planning and construction, there is no rent and no progress claim coming in. The carry is funded entirely by the developer, month after month, until the first settlement or lease.
That gives holding costs two unpleasant properties. First, they are a function of duration, so they punish delay directly. A three-month extension to a planning timeline, or a slow pre-sales campaign that pushes back a construction start, does not simply move the profit later; it adds real dollars of rates, land tax and interest that were never in the original budget. Second, the interest portion compounds against itself when it is capitalised, so a longer hold costs more than the straight-line arithmetic suggests.
For a developer, the practical read is that holding costs turn time into a cost line. When you are testing whether a deal stacks up, the holding period is one of the most sensitive inputs in the whole model, often more sensitive than a few per cent on construction. It is worth stress-testing a longer hold before you commit, because the development margin can look healthy on a 12-month program and thin badly on an 18-month one, purely on carry.
How much are land holding costs, and how do you estimate them?
There is no single number, because holding costs depend on the site’s value, its location, how it is funded and how long you hold it. The honest estimate is built from the parts rather than a rule of thumb, and the sensible approach is to model each part across the actual timeline. The four parts that matter on most sites are interest, land tax, council rates, and insurance, roughly in that order of size.
How do you estimate the interest carry?
Estimate the interest carry as the outstanding balance multiplied by the interest rate, multiplied by the time the balance is drawn. On a development that means the land debt from settlement, plus construction debt drawn progressively as the build proceeds, each carrying interest for the months it is outstanding. Because the construction facility is not fully drawn on day one, most feasibility models apply an average drawdown assumption rather than charging interest on the full facility for the whole term.
Two structures change how the carry behaves. With capitalised interest, the lender reserves the interest inside the facility and you make no monthly payments, so the debt grows over the term and the interest compounds. With serviced interest, you pay it monthly from equity, so the balance does not grow but your equity is drawn down sooner. Which one you use changes your peak funding requirement and your equity timing, not merely a figure in a table. The mechanics of both, and when each suits a deal, are covered in the guide on capitalised versus serviced interest.
On rates, the interest carry has been a moving target. The Reserve Bank of Australia (RBA) cash rate has stayed well above the near-zero levels of 2020 and 2021, and development finance sits at a margin above that, so interest is a materially larger share of holding costs than it was a few years ago. Rather than carry a stale figure, take your lender’s current quoted rate for the facility and model it against the drawn balance over the real term. The point in the timeline where the drawn balance is deepest is your peak debt, and that is where the interest carry bites hardest.
How do council rates work during a holding period?
Council rates are a local government charge levied on the value of the land, and they keep accruing through the holding period regardless of whether the site produces income. Councils generally strike rates against a statutory land value (the site value or unimproved value, depending on the state) provided by the state valuer-general, then apply their own rate in the dollar, usually billed quarterly.
For a developer the figure is modest next to interest and land tax, but it is predictable and unavoidable, and it does not pause because the site is vacant. Rates can also step up once the land is subdivided into more titles or reclassified from residential to a higher-rated category, so a subdivision that creates many small lots may carry more rates in aggregate than the single parent title did. Treat rates as a steady monthly outgoing across the hold, and check the specific council’s rating for the property type rather than assuming.
What insurance do you carry on a development site?
The insurance you carry changes as the site moves from vacant land to active construction. While the land sits undeveloped, most developers hold a property owner’s or vacant land public liability policy, because an unfenced or unattended site carries real liability exposure. Once construction starts, the builder or the developer takes out contract works insurance (also called construction all-risk) covering the works and materials during the build, alongside public liability for the site.
Insurance premiums are quote-dependent and have risen with the broader insurance market, so they are best sourced from a broker for the specific site rather than estimated from a percentage. The feasibility point is simply not to forget them, and to carry the right policy for the phase the site is in. In some states, home building compensation or warranty cover is a separate statutory requirement for residential work; that is a construction cost tied to the build rather than a pure holding cost, but it is worth flagging so it does not fall between the two categories.
What about maintenance, security and other site costs?
Maintenance and security are the smaller holding costs that are easy to leave out and annoying to discover later. A vacant site may need slashing or weed control to satisfy the council, fencing and hoarding, temporary services, and security or monitoring against dumping and trespass. Where you are holding a strata lot or an existing building before demolition, there may be owners corporation or body corporate levies, and the cost of keeping an unoccupied building insured and secure.
None of these is large on its own, but together they are rarely trivial across the months between settlement and a build start, and they belong in the holding line rather than being absorbed into a vague contingency. Model them as a recurring monthly amount for the hold, and revisit them if the timeline stretches.
What do land holding costs add up to on a typical site?
Interest usually dominates, and land tax is often the next largest, with rates, insurance and maintenance trailing well behind. The figures below are illustrative only and every deal differs, but working through a simple site shows the shape of the carry and why the interest line tends to overshadow the rest.
Consider a small infill site in New South Wales bought for $2 million with a land value of $1.6 million, funded with $1.3 million of land debt, and held for 18 months from settlement to the first settlement of a completed dwelling. On the land debt alone, interest at an indicative 8% a year over 18 months may typically run to around $155,000, and that is before the construction facility, which draws down progressively through the build and adds interest of its own. It is common for total interest on a project of this size to land somewhere in the region of $180,000 to $250,000 at current rates, which is why the interest carry usually sits at the top of the holding-cost list.
Land tax on the same site could add materially again. With a land value of $1.6 million, the New South Wales land tax would be roughly $100 plus 1.6% of the value above the $1,075,000 general threshold, near $8,500 a year, so a hold that spans two 31 December assessment dates could cost around $17,000 in land tax over the period. Council rates might typically add $3,000 to $6,000 a year, and insurance, maintenance and security together perhaps $5,000 to $15,000 across the hold. Add the parts and this modest site could carry well over $200,000 in holding costs before it earns a dollar, most of it interest, and every extra month of delay keeps the meter running. Change the state, the land value, the gearing or the timeline and the numbers move, which is exactly why it pays to model the carry on your own inputs rather than a rule of thumb.
How does land tax work on a development site?
Land tax is an annual state or territory tax on the value of land you own above a tax-free threshold, and a development site is usually fully exposed to it. The tax is assessed on the unimproved or site value of the land, so there is no building to dilute the figure, and the principal place of residence exemption that shelters an owner-occupier does not apply to land a developer holds for profit. It is charged on the total taxable land you own in that jurisdiction, so a developer with several sites in one state is assessed on the combined value, often pushing the holding into higher rate bands.
Two features of land tax reward attention. First, it is assessed on ownership as at a set date each year, which differs by state, so the timing of when you settle a purchase and when you settle the finished product can change how many land tax years the site passes through. Second, land held in a trust or company frequently gets a lower threshold or none at all, so the ownership structure can change the bill materially. The rules vary by jurisdiction, so the sections below lead with the two largest markets and then cover the rest. A feasibility model will not calculate land tax for you; as with stamp duty, you enter your assessed figure as a holding cost line, so it is worth getting the number right from the relevant revenue office.
The table below summarises the current position. Treat it as a starting point and confirm the figure for your site against the linked source, because thresholds and rates change.
| Jurisdiction | Assessed on ownership as at | General tax-free threshold (current) | Foreign or absentee owner land tax surcharge |
|---|---|---|---|
| New South Wales | 31 December | $1,075,000 (premium $6,571,000) | 5% on residential land |
| Victoria | 31 December | $50,000 | 4% absentee owner |
| Queensland | 30 June | $600,000 (companies and trustees $350,000) | 3% |
| South Australia | 30 June | $936,000 | none |
| Western Australia | 30 June | $300,000 | none |
| Tasmania | 1 July | $125,000 | 2% on residential land |
| Australian Capital Territory | quarterly | no threshold (rented and vacant residential) | 0.75% |
| Northern Territory | not applicable | no land tax | none |
New South Wales
In New South Wales land tax applies once the taxable value of your land is above the general threshold of $1,075,000, with a premium threshold at $6,571,000, and both thresholds are frozen at those levels for land tax years after 2024. Above the general threshold the rate is $100 plus 1.6% of the land value over $1,075,000, and above the premium threshold it is $88,036 plus 2% of the value over $6,571,000, per Revenue NSW’s land tax thresholds and rates.
Two points matter for a New South Wales development site. Land tax is assessed on ownership as at midnight on 31 December, and Revenue NSW uses a three-year average of the land value rather than the latest single year, which smooths out a spike but also means a rising market keeps feeding higher assessments for years. And foreign owners pay a surcharge land tax, which rose to 5% of the residential land value from the 2025 land tax year, with no tax-free threshold, under Revenue NSW’s surcharge land tax rules. Australian-based corporations that are technically foreign but develop residential land, including build-to-rent (BTR) projects, may be eligible for an exemption or refund of that surcharge if they meet the conditions, so it is worth checking rather than assuming the surcharge is unavoidable.
Victoria
In Victoria the general land tax threshold is just $50,000, having dropped from $300,000 on 1 January 2024, so almost any development site of meaningful value is caught. Above the threshold the tax is tiered and currently includes a temporary COVID debt levy that is legislated to run until 30 June 2033, per the State Revenue Office Victoria current land tax rates. As a rough guide, holdings between $50,000 and $100,000 attract a flat $500, holdings between $100,000 and $300,000 a flat $975, and above $300,000 the marginal rates climb to a top rate of 2.65%. Land held in a trust is assessed from a lower $25,000 threshold. Land tax is assessed on ownership as at 31 December, and an absentee owner surcharge of 4% applies to foreign owners.
Victoria also runs a separate tax that specifically targets land banking, and it is the one to watch if you hold sites for a long time. The Vacant Residential Land Tax (VRLT) applies to residential land left vacant, and from 1 January 2026 it extends to unimproved residential land in metropolitan Melbourne that has been capable of residential development but left undeveloped for at least five continuous years, taxed at 1% of the capital improved value. The five-year clock can count time before 2026, so land held undeveloped since 31 December 2020 or earlier may already be in scope. For a Victorian developer sitting on a metropolitan site awaiting the right moment, that is a real additional holding cost, and it is assessed on top of ordinary land tax.
Queensland
In Queensland land tax applies once the taxable value of your freehold land reaches $600,000 for individuals, or a lower $350,000 for companies and trustees, assessed on ownership as at midnight on 30 June each year, per the Queensland Revenue Office land tax rates. Because the assessment date is the end of the financial year rather than the calendar year, a Queensland timeline works to a different clock than the southern states, which can matter when you are planning settlements around a June or December date.
Queensland also applies surcharges to foreign holdings: an absentee surcharge of 3% for individuals who do not ordinarily reside in Australia, and a foreign surcharge of 3% for foreign companies and trustees, each applying to taxable land above $350,000, under the Queensland Revenue Office foreign surcharge rules. From the 2025-26 year, Queensland has introduced a pre-approval process and relief arrangements for certain landowners whose activities make a significant contribution to the state, so foreign-controlled developers should check whether they qualify for relief.
South Australia, Western Australia and Tasmania
These three states levy land tax on similar principles but with quite different thresholds, and all three assess on ownership around the end of the financial year. South Australia has the highest general threshold of the group at $936,000 for the 2026-27 year, indexed annually, with a much lower $25,000 threshold for land held in trusts, per RevenueSA’s rates and thresholds. South Australia assesses on ownership as at midnight on 30 June.
Western Australia has a low general threshold of $300,000, above which a flat amount then progressive rates apply up to a top marginal rate, and land in the Perth metropolitan region carries an additional Metropolitan Region Improvement Tax (MRIT) of 0.14% on the value above $300,000, which funds regional open space and infrastructure, per the Western Australian land tax assessment information. The Metropolitan Region Improvement Tax (MRIT) is easy to overlook because it sits alongside the land tax rather than inside it, so a Perth metropolitan development site carries both.
Tasmania has a general threshold of $125,000 from 1 July 2025, with tax of $50 plus 0.45% of the value above the threshold up to $500,000, and $1,737.50 plus 1.5% above $500,000, per the State Revenue Office Tasmania rates of land tax. Tasmania also charges a foreign investor land tax surcharge of 2% on residential land, with no threshold, so it applies from the first dollar of value.
Australian Capital Territory and Northern Territory
The two territories sit at opposite ends. The Australian Capital Territory has no tax-free threshold and charges land tax on residential land that is rented out or left vacant, combining a fixed charge (currently $1,693 for the year) with a marginal rate on the average unimproved value (AUV), billed quarterly, plus a foreign ownership surcharge of 0.75%, per the ACT Revenue Office land tax calculation rules. Because the Australian Capital Territory holds land on a leasehold system, developers there also deal with charges tied to changing a lease’s permitted use, which is a separate cost from land tax but part of the holding picture on a change-of-use development.
The Northern Territory is the only jurisdiction in Australia that levies no land tax at all. A Northern Territory development site still carries council rates, insurance and interest, and the valuer-general still assesses an unimproved capital value (UCV) for rating purposes, per the Northern Territory statutory valuations information, but the land tax line is simply zero. For a developer comparing sites across borders, that is a genuine holding-cost advantage for the Northern Territory, though usually a minor factor next to the market itself.
Can a developer claim land holding costs as a tax deduction?
Generally yes, if you are carrying on a property development business. That is the key distinction, and it is where a developer’s position differs sharply from a passive landholder’s. Since 1 July 2019, section 26-102 of the Income Tax Assessment Act 1997 (ITAA 1997) has denied deductions for the costs of holding vacant land, including interest, rates and land tax, but it contains an exclusion for land used, or available for use, in carrying on a business. The Australian Taxation Office (ATO) sets out how this works in its guidance on deductions for vacant land.
For property developers the important point is in the Australian Taxation Office (ATO) ruling TR 2023/3, which confirms that where a developer is carrying on a business, land held for future development is treated as available for use in that business, so the developer is generally not caught by section 26-102 even while the land sits undeveloped. In practice that means a genuine development business can usually deduct its interest, council rates and land tax as holding costs, rather than losing them.
The trap is the phrase “carrying on a business”, which is a question of fact, not a label you choose. A one-off or passive landholder who buys a block intending to build a single dwelling to rent may not be carrying on a business, and can be denied the deductions that a scaled-up developer would keep. The indicators the Australian Taxation Office (ATO) looks at include the scale, repetition and commercial character of the activity. Before 2019, the older principle from Steele’s case allowed holding costs to be deducted on a clear intention to build and derive income, but section 26-102 has narrowed that for anyone who is not in business.
Deductibility also interacts with how the land is characterised. Where a developer holds land as trading stock on revenue account, holding costs are generally deductible as they are incurred, and the eventual sale is taxed as ordinary income rather than under the capital gains rules. Whether your project is on revenue or capital account changes both the timing of deductions and the tax on the profit, and it is one of the first structuring decisions to get right; the difference is covered in the guide on capital gains tax and property development. Because the answer turns on your own facts and structure, this is an area to confirm with your accountant rather than assume.
How do land holding costs work in New Zealand?
New Zealand (NZ) has no land tax anywhere in the country, so that entire line is zero for a New Zealand (NZ) development site. You still carry the other holding costs: council rates levied by the territorial authority, insurance, maintenance, and interest on borrowings, and interest is still usually the largest of them.
On deductibility, developers are treated more favourably than ordinary residential investors. The residential interest limitation rules that restricted interest deductions for investors do not bite developers in the same way, because land held on revenue account in a land dealing, development or building business falls within the Inland Revenue Department (IRD) exemptions for property development and new builds. More broadly, interest deductibility for residential property has been restored to 100% from the 2025-26 income year, easing the position for everyone, per the Inland Revenue Department (IRD) residential property interest rules. For a developer holding land on revenue account, holding costs including interest, rates and insurance are generally deductible where there is a sufficient connection to the income the project will produce. As in Australia, the characterisation of the land and the business drives the answer, so confirm the specifics for your structure.
How do you keep land holding costs from blowing your feasibility?
Model them from day one, across the real timeline, and stress-test a longer hold. The single most useful habit is to schedule the holding costs across the actual months you expect to own the site, rather than dropping in a single lump, so the model shows the carry building through planning, pre-sales and construction. In a tool like Feasly you can spread them on the Gantt and see them flow through the month-by-month cashflow, with the interest carry modelled in the funding stack, then run a sensitivity on a longer program to see how the margin holds up. That turns “the holding period” from a guess into a line you can test.
A few practical moves reduce the damage. Price the land with the holding costs already in the model, because a residual land value that ignores carry will always be too generous. Watch the assessment dates, since settling a purchase just after a land tax date, or a completion just before the next one, can save a whole year’s land tax in some states. Keep an eye on the land-banking taxes, particularly Victoria’s Vacant Residential Land Tax (VRLT) on long-held metropolitan sites, before it quietly changes the maths on a slow site. And settle the ownership structure and the revenue-versus-capital question early, because it decides whether your interest, rates and land tax are deductible holding costs or dead weight. Holding costs are one of the few parts of a feasibility that reward patience in the modelling and punish optimism, so it is worth being conservative on the timeline and honest about the carry before the deal is committed.
This guide is general information for property developers and is not tax, legal or financial advice. Land tax thresholds, rates and rules change, and they apply differently depending on your circumstances and structure. Confirm the current position with the relevant state revenue office, the Australian Taxation Office (ATO) or Inland Revenue Department (IRD), and your own adviser before relying on any figure here.