Development finance moves through three distinct phases. Land acquisition. Construction. Exit. Each phase has different lender pools, different LVR rules and different risk-return profiles. The investor who understands all three before starting can plan a project that works. The investor who only thinks about the land purchase usually runs into trouble around month nine.
This article walks through the three phases, the lender treatment at each, the typical equity contributions required and the structural decisions that make small to mid scale development viable for first time developers.
What development finance covers
Development finance applies to projects where a borrower acquires land, builds one or more dwellings and then either holds or sells the completed product. The category spans simple dual occupancy builds at $1M total cost up to mid-scale townhouse developments at $10M plus. Different lenders specialise at different parts of the spectrum.
For the first time developer with a single dual occupancy project, the financing path is relatively straightforward. As project scale grows, lender selection becomes more critical and the structuring becomes more deliberate.
The three stages at a glance
| Stage | What is funded | What the lender wants to see |
|---|---|---|
| Land | The site purchase, typically at 60 to 70 percent LVR | 30 to 40 percent equity, a development application and an articulated exit |
| Build | Construction costs, released in stages as work is verified | A fixed-price contract, a licensed builder and contingency funding |
| Exit | The transition: sale, refinance to investment lending or a residual stock loan | A defined exit chosen before the land contract is signed |
Phase one. Land acquisition.
The first phase is purchasing the land. Lenders treat this as residential land lending if the property is zoned for residential use. The LVR is typically 60 to 70 percent depending on whether the lender knows construction is planned.
If construction approval is already in place, some lenders treat the land loan as a construction loan from day one. This avoids a refinance step later. The trade-off is the LVR is often lower at the land stage and the lender will want construction to start within a defined window.
What the bank wants to see at land stage
- Equity contribution typically 30 to 40 percent
- Evidence of construction approval or development application
- Borrower experience or a competent builder in place
- Exit plan articulated, even if construction is not yet imminent
Phase two. Construction.
This is where development finance gets technical. Construction lending operates on a progress payment basis. The lender does not fund the build upfront. They release funds in stages as work is completed, verified by a quantity surveyor or builder progress report.
Typical progress payment stages
- Deposit stage on contract signing
- Base or slab completion
- Frame completion
- Lock-up
- Fixing
- Practical completion
At each stage, the builder issues a claim. The lender's quantity surveyor verifies completion. Funds release. The borrower contributes any equity portion of that stage. Interest is capitalised on the drawn balance, not the approved limit.
Phase three. Exit.
The exit phase is where the lender's risk drops sharply and the structural choice matters most. Three exit options exist for a completed development.
Greater Brisbane's rental vacancy sits at 0.9% against a national 1.6% (SQM Research, June 2026), which is the kind of demand backdrop that makes completed stock easier to exit.
Sell on completion.
The builder finishes. The product goes to market. Sales proceeds clear the development debt. Remaining funds are the project's profit. The cleanest exit, particularly for first time developers who do not want to convert into landlord mode.
Hold and refinance to investment.
The build completes. The borrower refinances the development debt to standard investment lending against the completed dwellings. The properties become long-term rental assets. This requires personal serviceability to be available to take on the post-build investment debt.
Residual stock loan.
For projects with multiple dwellings, a residual stock loan refinances the development debt across the unsold completed product. This provides time to sell the remaining stock without pressure from an aggressive construction loan term.
"The exit is decided at the start of the project, not the end. The whole financing structure follows from the exit choice."
The structural decisions that make or break the project
Builder selection and contract type.
Lenders strongly prefer fixed-price building contracts. Cost-plus arrangements are harder to finance because the final price is unknown. The builder's licensing, insurance and project history matter to the lender's risk position.
Pre-sales requirements.
For larger projects, lenders may require pre-sales to a certain percentage of total project value before construction funding releases. For dual occupancy and smaller projects, pre-sales are usually not required. For four-plus unit developments, expect requirements to apply.
Contingency provisioning.
Every development needs contingency. Lenders typically require 5 to 10 percent of build cost held as contingency funding. The borrower needs to either provide this in equity or have it built into the loan facility.
Holding costs.
Twelve to eighteen months of interest, council rates, insurance and miscellaneous costs accumulate during build. These holding costs need to be planned for from day one. Most projects need an additional 5 to 8 percent budget allocation for holding costs.
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Common first time developer mistakes
One. Buying land before financing is approved.
The most common mistake. The borrower signs an unconditional land contract assuming construction finance will be available. When the development application takes longer or runs into council variations, the construction loan terms change. The whole project can collapse at this point.
Two. Underestimating equity required.
30 percent of land cost plus 20 to 30 percent of build cost plus contingency plus holding costs is a meaningful equity contribution. Many first time developers plan with a 20 percent global figure and run into shortfall halfway through.
Three. Wrong builder selection.
Selecting a builder on price alone produces problems mid-build. Lenders want to see a competent builder with a recent track record. The cheapest quote is often not financeable.
Four. No exit clarity.
Starting a development without a defined exit means halfway through the project the borrower is making major financial decisions under pressure. Decide the exit before signing the land contract.
Common questions
Do I need presales for development finance?
Usually not for small projects. Dual occupancy and two or three dwelling builds are generally funded without presales. Once a project reaches four or more units, most lenders require presales covering a set percentage of total project value before construction funds are released. Private funders are often more flexible than banks on this point.
What LVR do development lenders offer?
Development lending is assessed project by project rather than on a single sticker LVR. Lenders typically fund 70 to 80 percent of build costs, or 60 to 65 percent of the completed end value, whichever is more conservative. Land is usually funded at 60 to 70 percent, so expect a meaningful equity contribution.
Can a first-time developer get funded?
Yes, particularly at dual occupancy scale. Lenders offset limited experience by looking at the strength of the team around you: a licensed builder with a recent track record, a fixed-price contract and a realistic budget with contingency. Equity requirements may be slightly higher, and starting small builds the history larger projects need.
What is a residual stock loan?
A residual stock loan refinances development debt against completed but unsold dwellings. It replaces the construction facility, which carries a short term and pressure to clear, with a longer facility secured by finished stock. That gives the developer time to sell at market pace or hold some dwellings while marketing the rest.
The takeaway
Development finance is real specialist lending. The complexity scales with project size. For a first time developer doing a dual occupancy on an existing residential block, the path is manageable. For larger projects, the structuring is critical and the lender selection is the difference between a financeable project and a stuck one.
If a development project is on your horizon, book a strategy call. We can model the financing across all three phases before you commit to a site.