What Is Property Development Finance?
Property development finance is a short- to medium-term loan that funds the construction or major renovation of a property. It’s designed for projects like:
- Building multi-unit developments (e.g. townhouses, apartments)
- Commercial property construction
- Subdivisions or land development
- Mixed-use property builds
Unlike standard home loans, development finance is tailored for staged projects and involves progress payments aligned with the build timeline.
Key Differences Between Development Finance and a Standard Mortgage
Here’s a quick comparison:
| Feature | Property Development Finance | Standard Mortgage |
|---|---|---|
| Purpose | To fund construction projects | To buy an established home |
| Funding | Released in stages as work progresses | Full amount released at settlement |
| Term | 6 to 24 months | 25–30 years |
| Assessment | Based on project feasibility and end value | Based on income and credit history |
| Repayments | Often interest-only or capitalised | Monthly P&I or Interest-only |
| Exit Strategy | Required (sale or refinance) | Not required |
Features of Property Development Finance
Staged Drawdowns:
Lenders release funds progressively, matching construction milestones like slab, frame, lock-up, and completion.
Loan-to-GDV or Loan-to-Cost Ratios:
Funding is often capped at:
- 65–80% of total development cost, or
- 60–75% of the gross realisation value (GRV)
Interest Capitalisation:
Rather than paying interest monthly, it may be added to the loan and repaid at the end.
Shorter Term Loans:
Typically 6 to 24 months with a clear exit strategy required, such as presales or refinance.
When Should You Use Development Finance?
- You’re constructing multiple dwellings on one site
- You need to fund both land acquisition and the build
- Traditional bank funding doesn’t fit your structure
- You want flexibility with repayments and cash flow
- You’re working on a project with presales or DA approval
Real World Example
Imagine you’ve secured a corner block in a growing Brisbane suburb. You plan to build three high-end townhouses.
A standard mortgage won’t fund the construction of multiple dwellings.
With property development finance, you could:
- Settle on the land with a portion of the loan
- Access funds progressively during the build
- Avoid interest repayments during construction
- Exit the loan by selling the completed dwellings or refinancing
Final Thoughts
Property development finance is a powerful tool, but it requires a solid strategy, the right lender, and a clear exit plan.
At Northcap, we work alongside developers to structure the right solution from the ground up. Whether it’s your first build or you’re scaling up, we’ll help you:
- Secure the right funding structure
- Maximise your borrowing potential
- Align your project with lender expectations
- Get deals funded quickly, without the red tape
Ready to get your project off the ground?
Reach out to us today and let’s build something great. mailto:hello@northcap.com.