Development Finance Australia

Development finance is a specialised form of lending designed to fund construction, renovation, and property development projects. Unlike a standard property loan where the full amount is drawn at settlement, development finance is typically advanced in stages — matching the drawdowns to the progress of the build.

In Australia, development finance is used by property developers, owner-builders, and investors undertaking renovation or construction projects. The loan is secured against the property (either the land being developed or an existing property being renovated) and is structured to reflect the progressive nature of construction spending.

How Development Finance Works

The mechanics of development finance differ from a standard loan in one critical way: the capital is drawn down in stages rather than as a single lump sum. This is called progressive drawdown.

The borrower applies for a total facility — say $2,000,000 — but only draws down what is needed at each stage of the project. The first drawdown might cover site preparation and foundations. The second covers framing and structural work. Subsequent drawdowns cover fit-out, services, and completion. At each stage, the lender typically requires evidence that the previous stage has been completed before releasing the next tranche.

The key advantage is cost efficiency. The borrower only pays interest on the amount actually drawn, not the full facility. On a 12-month project where the average drawn balance is 50% of the total facility, this can represent a significant saving compared to drawing the full amount upfront.

Private Lenders vs Banks for Development Finance

Banks offer development finance but the process is lengthy and documentation-intensive. A bank development facility typically requires full quantity surveyor reports, detailed project costings, builder contracts, council approvals, pre-sale evidence, and extensive financial documentation from the borrower. The approval process can take 8 to 12 weeks.

Private lenders take a more pragmatic approach. The assessment focuses on the property value, the project feasibility, and the exit strategy. Documentation requirements are lighter — self-declared income is accepted on several products — and approval timelines are measured in days rather than months.

The trade-off is cost. Private development finance is more expensive than bank finance. But for many developers, the speed of access and the certainty of settlement outweigh the additional cost, particularly when holding costs on the land or lost opportunity costs from delays are factored in.

LVR Considerations for Development Finance

LVR for development finance is typically calculated in two ways. The first is against the current value of the property (as-is value). The second is against the projected completed value (on-completion value). Different lenders use different approaches, and the method used significantly affects how much can be borrowed.

At Alphacon Capital, our Flexi product offers up to 75% LVR for development and construction scenarios. The LVR is assessed against the current property value at the time of application. For projects where the completed value is significantly higher than the current value, this means the effective LVR on completion can be much lower — providing additional margin of safety.

Postcode category also affects the maximum LVR. Metro postcodes attract the best terms, while regional postcodes may attract lower maximum LVRs. Use our postcode checker to see how your project location is categorised.

Typical Costs

Development finance through a private lender typically includes the following cost components: establishment fee from 1.65% of the total facility, loan management fee from 0.15% per month on drawn funds, risk fee based on security type and LVR (from 0.40% for residential at LVR below 60%), and a drawdown fee of $1,000 per drawdown event.

Third-party costs including valuation fees, legal fees, and quantity surveyor fees (if required) also apply. These vary depending on the project size and complexity.

The total cost of development finance should be assessed against the project economics — the margin between total project cost (including finance costs) and the completed value or expected sale proceeds. A well-structured development finance facility should represent a small fraction of the total project margin.

What Developers Need to Know

Before applying for development finance, ensure your project has a clear exit strategy. The most common exits are sale of the completed property, refinance to a bank term loan, or lease-up and refinance against rental income. Lenders assess the viability of the exit strategy as a primary approval criterion.

Council approvals should ideally be in place before applying, though some lenders will consider applications where approval is imminent. Builder contracts, project timelines, and cost estimates strengthen the application. The more detail you can provide about the project, the faster the approval process.

The Flexi Product for Development Finance

Our Flexi product is purpose-built for development and construction scenarios. It offers progressive drawdown with interest charged only on drawn funds, auto-roll extensions if the project timeline shifts, and interest capitalisation so no cash repayments are required during the build phase. Loan sizes range from $200,000 to $10,000,000 with terms of 6 to 24 months.

If you are planning a construction or renovation project and need capital, start with our LVR calculator to see where your deal sits, or submit your scenario directly for same-day indicative terms.