Types of Property Development Loans Explained
When planning your next project, understanding the types of property development loans available in Australia is critical. From land acquisition to construction, there’s a range of finance solutions tailored to suit different stages and strategies in the development process..
Here’s a breakdown of the most common types of property development loans – written in plain English, so you know exactly what you’re working with
1. Land Purchase Loans for Property Development
Used to acquire raw or subdivided land, this is often the first step in a development strategy.
- Suitable for both vacant land and property with future development potential
- Often requires a larger deposit (30–40%)
- May require a clear exit strategy if no immediate construction is planned
2. Construction Finance – A Core Property Development Loan
The most common loan structure for active developments.
- Funds are released in stages (e.g. slab, frame, lock-up, fit-out, completion)
- Interest is usually only charged on the drawn amount
- Requires detailed construction plans, builder contracts, and council approvals
3. Development Finance for Residential Projects
This is typically used for larger, more complex developments involving multiple dwellings.
- Based on the Gross Realised Value (GRV) or Total Development Cost (TDC)
- Can be funded by major banks, second-tier lenders, or private funders
- Often includes cost overruns and contingency buffers in the loan structure
4. Mezzanine Funding – Secondary Development Loan Option
A second layer of funding is used when equity is tight.
- Sits behind a senior loan
- Higher risk = higher interest rates (often 15–25%)
- Useful for topping up the capital stack to reduce your upfront equity requirement
5. Residual Stock Loans for Completed Projects
Ideal for developers who have unsold completed stock and want to release equity.
- Lends against completed but unsold units
- Used to refinance construction debt or fund the next project
- May require pre-leases or valuations depending on the lender
6. Land Bank Loans for Future Developments
For holding sites with future development potential.
- Generally interest-only and short-term (6-24 months)
- Useful when rezoning or DA approval is pending
- Strong exit strategy required e.g. sale, refinance, or approved DA
7. Joint Venture Funding – An Equity-Based Loan Alternative
Instead of borrowing, you partner with an investor.
- Shared profit in exchange for development capital
- Can remove the need for traditional debt
- Requires strong feasibility and a solid development team
8. Private Lending as Flexible Property Development Finance
Fast, flexible funding when time or traditional documentation is a barrier.
- Ideal for site acquisition, bridging finance, or urgent settlement
- Higher rates but quicker turnaround
- Often asset-backed and less focused on borrower servicing
Choosing the Right Development Loan for Your Project
The ideal finance structure depends on your:
- Project type and scale
- Available equity
- Timeline
- Risk appetite
- Development experience
At Northcap, we work with property developers of all shapes and sizes—from boutique townhouse builders to experienced residential developers, structuring loans that align with project outcomes and commercial real estate. Understanding the types of property development loans available in Australia is critical; that’s why property developers use Northcap.
Need Help Structuring Your Next Development Loan?
Let’s simplify it. Get in touch; we’ll work with you to structure a development loan that suits your site, your team, and your plans.
Need more information?
Head to the Property page on our website https://northcap.com.au/property-finance
