Property development finance refers to the funding used for residential, commercial, or mixed-use property development. It encompasses various financial options, including term loans, mortgages, bridging loans, and personal loans. Developers can secure up to 70-80% of the “hard costs” of a project (such as construction expenses), but lenders typically don’t cover “soft costs” like architect fees or council fees. If you’re venturing into property development, understanding these financing options is crucial!

It’s important to understand that residential property development loans typically have higher interest rates than single residential property loans (such as owner-occupier or investment property mortgages, which are both perceived as lower risk).

The maximum loan-to-value ratio (LVR) for a property development loan varies between lenders, but it is usually a maximum of 80% for two-dwelling development projects and 70% for three-or four-dwelling projects.

Land banking involves buying a large block of undeveloped land that has been (or will be) rezoned or approved for development. Many developers divide the real estate they buy into smaller blocks to maximise their profits.

As the name suggests, a construction loan finances the building of multi-residential properties on the land.

Land banking and construction loans for property development are harder to get than residential property development loans. They are perceived as higher risk and lenders have stricter lending criteria for commercial loans accordingly.

Lenders typically require a certain percentage of pre-sales. Pre-sales are sales of units/apartments or townhouses before they have been completed (including sales “off the plan”).