The Loan to Value Ratio (LVR) on a development facility is the loan measured against a valuation, but the valuation a lender uses is rarely the one a first home buyer would recognise. For a homebuyer, the Loan to Value Ratio (LVR) is the loan over the purchase price. For a developer, it is the facility over the project’s end value, its Gross Realisation Value (GRV), or over the land’s current value, or over the cost to build, depending on which basis the lender chooses. That choice of basis matters more than the percentage itself, because the same dollar facility can read as a 52 per cent Loan to Value Ratio (LVR) against one basis and a 70 per cent ratio against another. A developer who quotes a Loan to Value Ratio (LVR) without naming the basis is not really saying anything.
This guide is written for the developer working out how much a lender will actually advance, and why. It covers what the Loan to Value Ratio (LVR) means on a development deal, how it differs from the homebuyer version that dominates the search results, the valuation bases a lender measures against (land, Gross Realisation Value, Net Realisable Value and cost), how the Loan to Value Ratio (LVR) sits alongside the Loan to Cost Ratio (LTC) and which one binds, what ratios Australian lenders currently accept, how the Goods and Services Tax (GST) quietly changes the basis, a worked example sizing a facility from the ratio, the levers that lift it, the build-to-rent case, and how New Zealand differs. Every benchmark is hedged, because lending appetite, valuations and rates move with the cycle and with the specific deal.
What is the Loan to Value Ratio (LVR) in property development?
The Loan to Value Ratio (LVR) in property development is the loan facility expressed as a percentage of a project valuation, and the lender sets a maximum ratio it is willing to lend to. If a lender will go to 65 per cent of a $10,000,000 valuation, the facility caps at $6,500,000, and the developer funds the rest with equity or other capital. The ratio is the lender’s primary control on how much of the deal’s value it is prepared to carry, and a lower ratio means more equity in front of the lender’s money, which is exactly the cushion the lender wants.
The part that trips up developers coming from residential lending is the word “value”. On a development, there is no single value, because the project is worth one thing as raw land today, another as a finished building, and another again once you net out the costs of selling it. So a development lender has to pick a basis, and the basis it picks changes the number completely. A facility of $6,000,000 might be 60 per cent of the finished value, 75 per cent of the land value, and 83 per cent of the cost to build, all at the same time. The percentage on its own tells you nothing until you know what it is a percentage of.
That is why a development Loan to Value Ratio (LVR) is best read as a pair: the ratio and its basis, together. “Sixty-five per cent of Gross Realisation Value (GRV)” is a complete statement. “Sixty-five per cent Loan to Value Ratio (LVR)” is not, because it leaves out the denominator that does most of the work. Get clear on the basis first, and the rest of the development funding conversation gets a lot easier to follow.
How is a developer’s Loan to Value Ratio (LVR) different from a homebuyer’s?
A homebuyer’s Loan to Value Ratio (LVR) is the loan over the purchase price or current valuation of one finished house, and the well-known threshold is 80 per cent: borrow above it and the lender generally requires Lenders Mortgage Insurance (LMI). As Moneysmart explains, Lenders Mortgage Insurance (LMI) is usually required above an 80 per cent Loan to Value Ratio (LVR), it protects the lender rather than the borrower, and it can cost in the order of 1 to 5 per cent of the loan. Almost everything ranking for “Loan to Value Ratio (LVR)” describes this world: deposits, Lenders Mortgage Insurance (LMI), how to get under 80 per cent. None of it describes a development facility.
A developer’s Loan to Value Ratio (LVR) is a different instrument. There is no Lenders Mortgage Insurance (LMI) on a development facility, the magic 80 per cent number does not apply, and the ratio is not measured against a purchase price. It is measured against a project valuation (usually the end value or the cost), and it is only one of several tests the facility has to pass. A development deal is also sized by the Loan to Cost Ratio (LTC), constrained by qualifying pre-sales, and on income-producing projects by an interest or debt-service cover ratio. The Loan to Value Ratio (LVR) is the headline, but it shares the work.
The practical upshot is that a developer cannot reason about a facility using homebuyer instincts. An 80 per cent Loan to Value Ratio (LVR) is routine for an owner-occupier with Lenders Mortgage Insurance (LMI), but on a development against the finished value it would be aggressive, and most senior lenders sit well below it. Reading the residential rules across to a development deal is one of the more common and expensive misunderstandings, because the two ratios share a name and almost nothing else.
What does a lender measure the Loan to Value Ratio (LVR) against? The valuation bases
A development lender measures the ratio against one of a handful of bases, and the difference between them can be larger than the difference between two lenders’ headline percentages. The valuer is instructed to assess the relevant basis, and the lender applies its ratio to that assessed figure. The bases that matter:
Land value, assessed “as is”
The land’s current market value in its present state, before anything is built, is the “as is” value. A lender funding the land acquisition (a residual or land facility before construction) lends against this. As valuers describe it, an “as is” valuation reflects the property’s current condition at the date of inspection, so it captures the site as it stands, sometimes with an approved Development Application (DA) lifting it, sometimes not. Lending against land alone is generally the most conservative position, because raw land is the hardest security to sell if the deal stops.
Gross Realisation Value (GRV), assessed “as if complete”
The Gross Realisation Value (GRV) is the total of the projected end sale values of everything the project will produce, assessed “as if complete”, meaning the valuer estimates what the finished product will sell for. This is the basis most people mean by a development Loan to Value Ratio (LVR), because it measures the loan against what the project will be worth at the end. The catch is that it is a forecast, not a present fact. As the same valuers note, an “as if complete” valuation estimates the property’s future value once the work is done, so lending against it carries the risk that the finished value, or the market that supports it, does not arrive. Lenders manage that risk by holding the ratio against Gross Realisation Value (GRV) lower than they would against a completed, tenanted building.
Net Realisable Value (NRV)
The Net Realisable Value (NRV) is the Gross Realisation Value (GRV) less the costs of selling (agent fees and legal costs at settlement), so it is the cash the project actually realises rather than the headline sales total. Some lenders prefer it precisely because it is more conservative than the gross figure. A Net Realisable Value (NRV) basis taken ex-Goods and Services Tax (GST) and ignoring any margin scheme benefit keeps the lending figure on the cautious side rather than flattering the deal.
Total Development Cost (TDC) and construction cost
A lender may also measure against cost rather than value: the Total Development Cost (TDC), which is the full cost of delivering the project (land, construction, professional fees, contingency, holding costs, finance and selling costs), or against construction cost alone, or construction plus contingency. Strictly, a ratio against cost is a Loan to Cost Ratio (LTC) rather than a Loan to Value Ratio (LVR), and the next section pulls them apart, but lenders often quote both in the same breath because a facility has to satisfy both at once.
The reason the basis matters so much is gearing in the literal sense. The “as if complete” Gross Realisation Value (GRV) is usually the largest number, so it produces the most flattering (lowest) ratio for a given loan, which is why a developer naturally reaches for it and a cautious lender discounts it. The land value is usually the smallest, so it produces the least flattering ratio. Quoting a Loan to Value Ratio (LVR) without naming the basis, in practice, almost always means quoting it against the most generous basis available, which is exactly why a lender will pin down the basis before it pins down the percentage.
Loan to Value Ratio (LVR) versus Loan to Cost Ratio (LTC): which one binds?
A development lender almost always applies both a Loan to Value Ratio (LVR) cap and a Loan to Cost Ratio (LTC) cap, and the binding constraint is whichever produces the smaller facility. The Loan to Value Ratio (LVR) measures the loan against the project’s value, usually the Gross Realisation Value (GRV). The Loan to Cost Ratio (LTC) measures the same loan against the Total Development Cost (TDC). The lender runs both and lends to the lower result, because it wants the facility to sit safely under its value cap and its cost cap at the same time.
A useful way to picture it: the value cap (against Gross Realisation Value (GRV)) sets the ceiling, the cost cap (against Total Development Cost (TDC)) sets the floor, and the residual development margin between value and cost is what decides whether there is enough buffer for the lender to fund the deal at all. On a fat-margin project, where the end value sits well above the cost, the cost cap usually binds, because the value cap is generous. On a thin-margin project, where value and cost are close, the value cap can bind first, and a deal with too little margin fails both. This is why two projects with the same Total Development Cost (TDC) can support very different facilities: the one with the higher Gross Realisation Value (GRV) has more headroom under the value cap.
For a developer, the takeaway is to model both ratios and watch the lower one, because that is the number the facility is actually sized to. A full treatment of the cost side, and how the Loan to Cost Ratio (LTC) is built up, is its own topic; here the point is that the Loan to Value Ratio (LVR) rarely acts alone. The cost discipline that sits underneath it runs through the development cashflow modelling that produces the peak facility requirement in the first place.
What Loan to Value Ratio (LVR) will lenders actually accept in Australia?
Australian development lenders generally work to something like 60 to 65 per cent of Gross Realisation Value (GRV), or 70 to 80 per cent of Total Development Cost (TDC), with the figure depending heavily on the lender type and the risk of the deal. As a rough guide drawn from current market commentary, the tiers run roughly like this, and every figure should be treated as indicative rather than a quote:
- Major banks tend to sit at the conservative end, often around 65 per cent of Gross Realisation Value (GRV) or 60 to 70 per cent of Total Development Cost (TDC), and they pair that with the strongest pre-sale and serviceability requirements.
- Non-bank and specialist lenders generally go higher, often around 70 per cent of Gross Realisation Value (GRV) or 65 to 75 per cent of Total Development Cost (TDC), accepting more risk in exchange for a higher rate and requiring less equity.
- Private lenders can stretch further again, sometimes to 75 per cent or more of cost or value for deals with strong security, at the highest cost of funds.
The basis the valuer is instructed to assess moves the result as much as the lender tier does. Lending against an “as if complete” valuation produces a larger denominator and therefore a lower, more favourable ratio, and non-bank lenders use the on-completion basis more freely than the major banks. For narrower project types the accepted ratios are tighter again: market commentary points to subdivision finance around 65 per cent and renovation or flip finance around 70 per cent of the “as if complete” value, reflecting the specific risk of each.
Behind the conservatism sits the prudential framework. Under the Australian Prudential Regulation Authority (APRA)‘s Prudential Standard APS 220 Credit Risk Management, an authorised deposit-taking institution (ADI) must be able to limit the extent of its lending for land acquisition, development and construction, which is among the riskier lending a bank does. That constraint is part of why bank ratios sit lower and why developers chasing a higher Loan to Value Ratio (LVR) often end up with a non-bank or a layered structure. The cost of the debt rises as the ratio does, and with the Reserve Bank of Australia (RBA) cash rate moving through the cycle and development margins stacked on top, the gap between a bank rate and a private rate is wide enough that pushing the ratio higher is a real cost decision, not a free lift.
How do the Goods and Services Tax (GST) and the valuation basis change your Loan to Value Ratio (LVR)?
The Goods and Services Tax (GST) can swing the denominator of a Gross Realisation Value (GRV) based Loan to Value Ratio (LVR) by close to a tenth, so whether the basis is quoted inclusive or exclusive of the Goods and Services Tax (GST) genuinely changes the ratio. New residential premises are generally a taxable supply under the Australian Taxation Office (ATO) rules on Goods and Services Tax (GST) and residential property, so the Goods and Services Tax (GST) is baked into the sale prices a Gross Realisation Value (GRV) is built from. A Gross Realisation Value (GRV) quoted inclusive of the Goods and Services Tax (GST) is larger, which flatters the ratio, but it overstates the cash the project keeps, because on new residential stock the Goods and Services Tax (GST) component is withheld by the purchaser and paid directly to the Australian Taxation Office (ATO) at settlement. The developer never receives that slice, so a facility sized against an inclusive Gross Realisation Value (GRV) is sized against money that partly belongs to the tax office.
This is why the basis needs to be consistent and why conservative lenders lean toward the net figure. A Net Realisable Value (NRV) basis, taken ex-Goods and Services Tax (GST) and net of selling costs, is closer to the cash the project actually realises, which is the money available to repay the loan. Where the margin scheme applies and reduces the Goods and Services Tax (GST) on sales, the benefit flows into the net proceeds but a cautious lender will often ignore it when sizing, to keep a buffer. The cleanest discipline for a developer is to know exactly which basis a quoted ratio uses, and to compare lenders on the same basis, because a “70 per cent” against inclusive Gross Realisation Value (GRV) and a “70 per cent” against ex-Goods and Services Tax (GST) Net Realisable Value (NRV) are not the same loan.
Modelling tools handle this explicitly. In Feasly you can size a facility to a target Loan to Value Ratio (LVR) against any of the bases, including or excluding the Goods and Services Tax (GST), and read the resulting blended Loan to Value Ratio (LVR) and Loan to Cost Ratio (LTC) off the funding outputs, so the ratio you negotiate to is the ratio the model is built on.
How does the Loan to Value Ratio (LVR) interact with peak debt, pre-sales and the rest of the stack?
The Loan to Value Ratio (LVR) cap is a ceiling that the project’s deepest funding need has to fit under, and when it does not, the gap is filled with equity or subordinated capital rather than more senior debt. A development draws down to a maximum debt balance late in construction, the peak debt, and that peak has to sit under both the Loan to Value Ratio (LVR) cap and the Loan to Cost Ratio (LTC) cap. If the peak debt the cashflow demands is larger than the Loan to Value Ratio (LVR) cap allows, the developer has three options: put in more equity, bring in subordinated capital, or shrink the deal.
Filling the gap is where the rest of the capital stack comes in. Mezzanine finance or preferred equity can sit behind the senior facility and cover the slice between the senior Loan to Value Ratio (LVR) cap and the total funding need, which lifts the effective gearing on the whole project without breaching the senior lender’s ratio. It is more expensive than senior debt, so it is a tool for the top of the stack, not the base. Qualifying pre-sales also interact with the ratio: strong pre-sales can support a higher Loan to Value Ratio (LVR) from some lenders, because contracted settlements give the lender a clearer path to repayment. A development finance broker earns their fee here, in matching the deal to a lender whose ratio, basis and pre-sale settings actually fund it.
One structure to treat with caution is stacking security to lift gearing, such as cross-collateralising another property or taking a second mortgage behind the senior debt. Each lifts the effective Loan to Value Ratio (LVR) across the borrower’s position and the cost of capital with it, and each ties more of the developer’s assets to one deal. It can be the right move to get a strong project funded, but it raises the stakes if the project slips, so it deserves the same scrutiny as any other lever that pushes the ratio up.
A worked example: sizing a facility from the Loan to Value Ratio (LVR)
Take a small project and run the ratios to see how the basis decides the facility. All figures are indicative and rounded for clarity. Assume an eight-apartment project with a Gross Realisation Value (GRV) of $9,600,000 inclusive of the Goods and Services Tax (GST), around $8,730,000 ex-Goods and Services Tax (GST), a Net Realisable Value (NRV) of about $8,300,000 after selling costs, a Total Development Cost (TDC) of $7,200,000, and land worth $2,000,000 “as is”. On those numbers the project profit is on the order of $1,100,000, a margin on cost near 15 per cent.
Now apply two common caps. A lender offering 65 per cent of the Gross Realisation Value (GRV) inclusive of the Goods and Services Tax (GST) would size to $6,240,000. The same lender applying 70 per cent of the Total Development Cost (TDC) would size to $5,040,000. It lends to the lower of the two, so the facility is $5,040,000, the cost cap binds, and the developer funds the remaining $2,160,000 (30 per cent of the Total Development Cost (TDC)) with equity.
Here is the part that catches people out. That single $5,040,000 facility can be described three different ways, all true at once:
| Basis | Value | Facility / basis | Reads as |
|---|---|---|---|
| Gross Realisation Value (GRV), inc Goods and Services Tax (GST) | $9,600,000 | $5,040,000 | 53% |
| Net Realisable Value (NRV), ex Goods and Services Tax (GST) | $8,300,000 | $5,040,000 | 61% |
| Total Development Cost (TDC) | $7,200,000 | $5,040,000 | 70% |
The same loan is a 53 per cent ratio, a 61 per cent ratio or a 70 per cent ratio depending on the basis named. A developer told “we can do 53 per cent” and a developer told “we can only do 70 per cent” might be hearing about the identical facility. This is the whole reason to insist on the basis, not only the number. If the project carried a higher Gross Realisation Value (GRV) on the same cost (a fatter margin), the value cap would lift and the cost cap would bind harder; if the margin were thin, the value cap could drop below the cost cap and become the binding constraint, leaving the developer to fund more of the deal.
How can a developer improve their Loan to Value Ratio (LVR) outcome?
The most reliable way to lift the ratio a lender will offer is to lower the risk the lender is pricing, because the Loan to Value Ratio (LVR) is a risk dial, not a fixed rule. The levers that tend to move it, all of them dependent on the specific lender and deal:
- Bring genuine, qualifying pre-sales. Contracted arm’s length pre-sales give the lender a path to repayment and can support a higher ratio, as well as satisfying the separate pre-sale cover test. Soft or related-party contracts do not count.
- Show a track record. Lenders generally extend a higher ratio to experienced developers with a history of delivering similar projects, because delivery risk is lower. A first-time developer should expect a more conservative cap.
- Use a fixed-price, reputable build contract. A fixed-price contract with a credible builder reduces cost-overrun risk, which supports both the Loan to Cost Ratio (LTC) and the lender’s confidence in the Total Development Cost (TDC) figure.
- Sharpen the valuation instructions. The basis and the comparable evidence the valuer relies on drive the denominator. A well-prepared valuation, with strong comparable sales and clear assumptions, can support a more favourable assessment than a thin one.
- Match the lender to the deal. If a bank’s ratio leaves too large an equity gap, a non-bank or a layered structure with mezzanine finance may fund the same project at a higher effective ratio, at a higher cost. Choosing the right lender is often a bigger lever than negotiating with the wrong one.
- Strengthen the deal’s margin. Because the value cap and the cost cap both depend on the relationship between Gross Realisation Value (GRV) and Total Development Cost (TDC), anything that genuinely lifts the end value or trims the cost widens the buffer the lender is funding into and can ease the binding cap.
None of these is a trick to inflate the number. They work by reducing the lender’s risk, which is the only thing a higher ratio reflects. Chasing gearing for its own sake, by stretching the basis or stacking security, raises the cost of capital and the downside if the deal slips, so the better question is usually not “how high can the ratio go” but “what ratio lets this deal carry a sensible buffer at a cost that still works”.
How does the Loan to Value Ratio (LVR) work for build-to-rent and commercial projects?
For a build-to-rent or commercial project that is held rather than sold, the Loan to Value Ratio (LVR) is measured against the completed, income-producing value, and it shares the decision with an income-cover test. Through construction, the ratio works much as it does on a build-to-sell deal, against the “as if complete” value or the cost. At completion, the facility terms out into investment debt, and the lender values the building on its income, then applies a Loan to Value Ratio (LVR) to that completed value.
The difference is that the ratio no longer acts alone, because a held asset is repaid from rent, not sales. The lender also tests an Interest Cover Ratio (ICR) or a Debt Service Coverage Ratio (DSCR), the ratio of Net Operating Income (NOI) to interest or total debt service, and on a Build-to-Rent (BTR) project that cover test often binds before the Loan to Value Ratio (LVR) does. Australian lenders commonly want a Debt Service Coverage Ratio (DSCR) comfortably above 1.0, often around 1.25 times, so the income clears the debt service with headroom. A developer modelling a held project should size the long-term debt to whichever of the Loan to Value Ratio (LVR) and the cover ratio is tighter, because a facility that passes the value test can still fail the income test.
What about New Zealand?
New Zealand uses the same development Loan to Value Ratio (LVR) logic, but it sits inside a formal central-bank restriction that has no Australian equivalent, so the term carries an extra meaning across the Tasman. The Reserve Bank of New Zealand (RBNZ) sets Loan to Value Ratio (LVR) restrictions on banks’ residential mortgage lending, a “speed limit” on how much high-ratio lending each bank can write. From 1 December 2025 the settings allow banks to write up to 25 per cent of new owner-occupier lending above an 80 per cent Loan to Value Ratio (LVR), and up to 10 per cent of new investor lending above a 70 per cent ratio, a modest easing on the prior limits, and they sit alongside the Reserve Bank of New Zealand (RBNZ)‘s newer debt-to-income (DTI) restrictions. These apply to residential mortgages rather than development facilities directly, but they shape the market a New Zealand developer’s buyers borrow in, and therefore the depth of demand for completed stock.
On the development facility itself, New Zealand lenders apply ratios against value and cost much as Australian lenders do, with banks conservative and non-banks higher and dearer. Two local differences are worth carrying into the model. New Zealand has no stamp duty or transfer duty on land, unlike Australia where transfer duty is a sizeable early cost, so the Total Development Cost (TDC) carries no duty line, which changes the cost base a Loan to Cost Ratio (LTC) is measured against and leaves more of the early funding for the land itself. And the Goods and Services Tax (GST) runs on different rules from the Australian system, with its own treatment of property and no margin scheme equivalent, so a Gross Realisation Value (GRV) based ratio should be built on the New Zealand Goods and Services Tax (GST) basis rather than the Australian one. The logic of the ratio travels; the inputs do not.
Frequently asked questions
What is the Loan to Value Ratio (LVR) in property development? It is the loan facility as a percentage of a project valuation, with the lender setting a maximum it will lend to. Unlike a homebuyer’s Loan to Value Ratio (LVR), which is measured against a purchase price, a development Loan to Value Ratio (LVR) is measured against the project’s end value (Gross Realisation Value (GRV)), its net realisable value, its cost, or the land value, so the basis has to be named for the ratio to mean anything.
What is the maximum Loan to Value Ratio (LVR) for a development loan in Australia? It varies by lender and deal, but Australian lenders generally work to around 60 to 65 per cent of Gross Realisation Value (GRV) or 70 to 80 per cent of Total Development Cost (TDC). Major banks sit at the conservative end with the strongest pre-sale requirements, non-bank and private lenders go higher at a higher cost. Treat any single figure as indicative, not a quote.
Is the development Loan to Value Ratio (LVR) measured against Gross Realisation Value (GRV) or Total Development Cost (TDC)? Lenders usually apply both. The ratio against value (Gross Realisation Value (GRV)) is a Loan to Value Ratio (LVR); the ratio against cost (Total Development Cost (TDC)) is a Loan to Cost Ratio (LTC). The facility is sized to whichever produces the smaller loan, so both have to be modelled and the lower one watched.
What is the difference between the Loan to Value Ratio (LVR) and the Loan to Cost Ratio (LTC)? The Loan to Value Ratio (LVR) measures the loan against the project’s value, usually the Gross Realisation Value (GRV). The Loan to Cost Ratio (LTC) measures the same loan against the Total Development Cost (TDC). The value cap sets the ceiling, the cost cap sets the floor, and the lender lends to the lower of the two.
How can a developer get a higher Loan to Value Ratio (LVR)? By lowering the lender’s risk: genuine qualifying pre-sales, a delivery track record, a fixed-price build contract, well-prepared valuation evidence, and matching the deal to a lender whose ratio and basis suit it. A higher ratio reflects lower risk, not a negotiating trick, and pushing it up through stretched valuations or stacked security raises the cost of capital and the downside.
Does Lenders Mortgage Insurance (LMI) apply to development loans? No. Lenders Mortgage Insurance (LMI) and the 80 per cent threshold belong to residential home lending. A development facility is not insured that way; the lender manages its risk through the Loan to Value Ratio (LVR) cap, the Loan to Cost Ratio (LTC) cap, pre-sale cover and, on held assets, an income-cover ratio.
The bottom line
The Loan to Value Ratio (LVR) on a development deal is a pair, not a number: the ratio and the basis it is measured against, read together. The same facility can be a 53 per cent ratio against an inclusive Gross Realisation Value (GRV) or a 70 per cent ratio against the Total Development Cost (TDC), so the basis does most of the work and a percentage quoted without it tells you little. Australian lenders generally hold to around 60 to 65 per cent of Gross Realisation Value (GRV) or 70 to 80 per cent of cost, apply the Loan to Cost Ratio (LTC) alongside it and lend to the lower, and price the rate up as the ratio climbs. Model both ratios on a consistent Goods and Services Tax (GST) basis, know which one binds, and treat a higher Loan to Value Ratio (LVR) as the reward for a lower-risk deal rather than a target in itself. Get that right and the facility you negotiate to is the facility the project can actually carry.
This guide is general information for property developers and does not take your specific circumstances into account. Lending ratios, valuations, tax rules and regulations change, so confirm the current position with the relevant primary sources and your own professional advisers before relying on any figure for a live deal.