Before committing to a development facility, you will need professional advice from a finance broker or debt adviser and a property finance lawyer, with the loan and security documents reviewed before signing rather than after. Terms vary far more between lenders than headline rates suggest, the provisions that matter sit in the guarantees, the default clauses and the extension rights, and those guarantees generally reach the sponsor personally. Every project, every sponsor covenant and every lender’s appetite is different. This guide sets out how the market is structured so that conversation starts further along. It does not recommend a lender or a facility, and there is a list of the questions worth putting to your broker and lawyer at the end.
Australian development finance has shifted from bank dominance toward a wider mix of funding sources, with non-bank lenders taking a materially larger share of construction lending. This guide covers the options available, from traditional bank facilities through bridging and mezzanine finance to joint venture and alternative capital.
Rates, ratios and criteria in this guide are indicative of market practice at the date of writing and move with the cycle. Where a figure comes from a published source it is attributed. Anything you intend to rely on should be confirmed against a current term sheet.
The Australian development finance market
APRA’s effect on bank lending
The Australian Prudential Regulation Authority (APRA) maintains a countercyclical capital buffer for authorised deposit-taking institutions, which affects how banks approach development exposure. Banks remain well capitalised, per APRA’s quarterly ADI statistics, but have become more selective on development lending.
That has created room for non-bank lenders, which now provide a significant share of construction funding, generally with greater flexibility on pre-sales and faster approval timelines than the major banks. The Reserve Bank of Australia’s Financial Stability Review tracks the growth of non-bank lending as a share of business and housing credit.
What the shift means for a developer
The trade-off is consistent across the market: speed, flexibility and certainty in exchange for cost. Banks generally remain the cheapest source of construction debt where a project can meet their pre-sale and equity hurdles. Where it cannot, the relevant comparison is not bank pricing against non-bank pricing, but non-bank pricing against not proceeding.
Traditional bank development finance
How a bank facility is structured
Bank development loans typically follow a staged drawdown tied to construction milestones. Indicative market practice:
- Loan to Value Ratio (LVR): commonly around 60 to 70 per cent of end value
- Loan to Cost Ratio (LTC): commonly around 70 to 80 per cent of total development cost
- Pre-sales: commonly substantial qualifying pre-sales covering a large share of the debt
- Term: commonly 18 to 36 months
Staged drawdown aligns funding with construction progress. A typical stage profile runs land settlement, site establishment, foundations, frame and roof, then the balance at practical completion, with each draw released against a quantity surveyor’s certification. The construction loan drawdown guide covers the mechanics.
What a bank will ask for
- A feasibility showing project viability, with the funding stack, development margin and returns
- Quantity surveyor reports detailing construction costs
- Planning approvals and permits
- Pre-sale contracts meeting the lender’s qualifying criteria
- Month-by-month cash flow projections through the development
- Developer track record and financial capacity
Lenders generally look for a complete financial picture, including contingency for cost overruns and market movement, rather than a base case alone.
Where bank criteria have tightened
Common current requirements include a meaningful cash equity contribution from the borrower, demonstrated development experience or an experienced joint venture partner, full insurance including professional indemnity, environmental assessments, and market analysis supporting projected sale prices and absorption rates.
Bridging finance
Where bridging finance fits
Bridging finance is short-term funding, commonly 6 to 24 months, used while longer-term finance is arranged or a sale completes. It is commonly used for land acquisition ahead of approval, auction purchases requiring immediate settlement, refinancing to release equity for a new project, covering a gap between construction phases, or holding a position while a senior facility is finalised.
Cost and structure
Bridging facilities generally cost more than senior development finance. Indicative market ranges have commonly been quoted around 8 to 15 per cent per annum, at an LVR of roughly 60 to 75 per cent of security value, over a 6 to 24 month term, with establishment fees of around 1 to 2 per cent. A clear exit, whether refinance or sale, is generally a precondition.
The advantage is speed, with settlement in days rather than weeks. The bridging loans guide covers the product in detail, and the caveat loans guide covers the shorter and more expensive end of the same market.
Who provides it
The bridging market includes non-bank specialists, private mortgage funds offering higher leverage at premium rates, family offices and private investors, and marketplace platforms. Which of these suits a given deal is a question for a broker who can see the whole panel, since pricing and behaviour vary widely and are not always transparent on websites.
Mezzanine finance and alternative capital
How mezzanine sits in the stack
Mezzanine finance sits between senior debt and equity, commonly providing 10 to 20 per cent of total project funding alongside senior debt. It is used to access higher total leverage than senior debt alone, to bridge an equity gap, or to preserve equity in a project.
Indicative pricing has commonly been quoted in the 12 to 22 per cent per annum range, sometimes with equity participation, secured by a second mortgage behind the senior lender under an intercreditor deed, with interest capitalised during construction. The mezzanine finance guide covers the instrument, the intercreditor position and the all-in cost.
Joint venture and equity partnerships
Joint ventures provide an alternative to additional debt, particularly on larger projects. Common structures include a land equity joint venture, where a landowner contributes the site and the developer contributes expertise and delivery; a funding joint venture, where a capital partner provides development funding for a share of profit; and a development management agreement, where the developer earns fees for delivering a project on behalf of a capital partner.
How returns are split between the parties, and in what order, is set by the waterfall. The equity partners and preferred equity guide and the profit distribution and equity waterfall guide cover the mechanics.
Other capital sources
Family offices and high-net-worth investors provide direct funding, often with closer involvement in project decisions. Property syndicates allow a developer to pool investor capital, though doing so generally creates a managed investment scheme with the licensing and disclosure obligations covered in the syndicates guide. Foreign capital is subject to Foreign Investment Review Board approval and current restrictions.
Self-managed super funds face significant restrictions on lending to and investing in development, and superannuation is a financial product, so anything involving an SMSF investor is a matter for a licensed adviser.
State considerations
Development finance markets are not uniform, and the differences are matters of market depth and planning risk rather than law.
New South Wales is the largest market by deal volume and lender concentration, with appetite concentrated on inner-city apartments, build-to-rent, mixed-use in established centres and infrastructure-linked projects. Planning complexity and development contributions vary significantly by council.
Victoria sees emphasis on established-suburb infill, regional growth corridors, student accommodation and healthcare. Planning timelines and the post-cladding building regulation environment both affect execution risk.
Queensland benefits from interstate migration, with appetite across South East Queensland infill and coastal lifestyle product. Body corporate legislation and flood and cyclone insurance are recurring considerations.
Other states and territories are served more selectively, and regional projects generally attract both a track record premium and a pricing premium.
GST and tax interaction
The GST margin scheme affects development financing through purchase price structuring, input tax credit timing during construction, cash flow through the build, and the net proceeds on sale. GST withholding on new residential premises also affects settlement cash flow and therefore the facility. The GST guide and the funding GST guide cover both.
Interest deductibility, depreciation, capital gains treatment and GST compliance all interact with the financing structure and the entity holding the project. How they apply turns on the specific structure and facts, so the tax position is one to settle with your accountant before the facility is documented.
Application process and timelines
What to prepare
Financial: project feasibility, personal and company financial statements, tax returns, asset and liability position, banking and credit history.
Project: development approvals, plans and specifications, quantity surveyor cost estimates, market analysis and sales strategy, construction contract and programme.
Supporting: track record and references, professional team credentials, insurance confirmations, legal due diligence, environmental assessments.
Indicative timelines
Banks commonly run 6 to 12 weeks from application to approval, across initial assessment, detailed due diligence, credit committee and documentation.
Non-bank lenders commonly run 2 to 6 weeks, with an initial indication often within days.
Shorter-term private lenders can move faster again, sometimes settling in days, at higher cost.
Comparing offers
The variables that matter beyond the headline rate: establishment, line and exit fees; LVR and LTC maximums and which one binds; pre-sale requirements; whether interest capitalises; extension rights and on whose election; default interest and what triggers it; the scope of personal guarantees; and drawdown mechanics, specifically whether draws follow quantity surveyor certification or lender discretion.
Risk and contingency
Cost overruns. Construction input costs are tracked in the ABS producer price indexes. Contingency provisioning, fixed-price contracts where available, and regular cost monitoring are the usual responses. The construction contingency guide covers how much is typically carried and when.
Market risk. Pre-sales reduce exposure, and alternative exits including rental or refinance provide a fallback where sell-down slows.
Construction and builder risk. Builder insolvencies have run at elevated levels, which has led lenders to require detailed builder due diligence including financial statements, pipeline visibility and independent contractor ratings.
Interest rate and cash flow risk. Capitalised interest grows the payout figure every month a project runs long, so the exposure worth modelling is not the base case but the position if the programme slips by three or six months.
First-time developers
Building credibility without a track record generally means borrowing it from the team: an experienced development manager or joint venture partner, a builder with a track record in comparable product, and established professional advisers. Lenders commonly expect a higher equity contribution from a first-time sponsor than from an experienced one, and personal guarantee capacity is generally part of the assessment.
Alternative paths include working as development manager for a capital partner, which provides experience with limited financial exposure, partnering with an experienced developer, or building a record through smaller projects such as dual occupancy or small subdivisions.
What to ask your broker and lawyer
These questions decide whether a facility fits a project, and each turns on the specific loan documents. They are set out here so the first conversation starts further along.
- What is the all-in cost of this facility over the expected term, and over a term three and six months longer, including every fee?
- Which constraint binds our facility size, the LVR or the LTC, and what happens to the facility if the valuation comes in under?
- What exactly repays this facility, and what happens if that exit slips past the long-stop date?
- Are there extension rights, at whose election, and at what rate and fee?
- What is the default interest rate, what events trigger it, and does it compound monthly or annually?
- Is the personal guarantee capped in dollars and limited to this project, or is it unlimited and cross-collateralised?
- Are drawdowns tied to quantity surveyor certification or to lender discretion?
- What pre-sales qualify, and what happens if a purchaser rescinds?
- Is this lender funding from its own balance sheet or from a fund with redemption exposure, and what happens to our drawdowns if that fund faces redemptions?
- Are establishment or commitment fees refundable if the lender declines after due diligence?
- Can the lender reprice or withdraw late in the process, and what does “subject to satisfactory due diligence” allow?
In summary
The market has moved from bank dominance to a wider mix of funding sources, which has widened the options available to a developer and raised the importance of comparing them properly. Banks remain the cheapest source where a project meets their criteria. Non-bank senior, stretch senior, mezzanine and joint venture capital each solve a different constraint, at a different price, and the right comparison is the all-in cost of each against the project’s margin and timeline rather than the headline rate.
Lending terms, rates, fees and regulatory settings change. The figures in this guide were indicative at the date of writing, and the primary sources linked above are the place to confirm the current position before relying on any of them.