Property development guide part 5 – Financing your project


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In the fifth instalment of his series on property development Bryce Yardney, property development Specialist at Metropole Properties explains in detail how to secure funding for your real estate development project. 

Before you commence any development project, it is obviously crucial to first establish how much you can borrow and how you will be able to manage all associated costs of 29117532 - piggy bank following money to a house isolated on a white backgroundthe development.

As a property developer you will have to understand finance and what the banks look for when lending for development projects, which is very different to how they assess financing a simple buy and hold investment.

Today lenders are allergic to risk and look after their own safety first so before deciding whether to finance your project they will assess the risk, firstly with regard to you as an individual and your ability to repay the loan, and then on the viability of the development itself.

In other words, banks don’t simply lend based on the security of the project; they also want to establish the track record of the people behind the development.

Until you develop a good reputation with the bank and a sound track record in property development, lenders will also assess your development team as well as the professionalism of your finance presentation to them.

This means it’s important to submit your loan request in a professional manner, including a detailed feasibility study to show that you have allowed for all contingencies.

Generally your development loan will be structured so the lender provides up to 70 to 80 per cent of the final cost of the project, rather than its end value and they will expect you as the developer, or your equity partners, to provide the balance of the funding.

The amount you can borrow is known as the Loan to Value Ratio or LVR.  

Lenders generally class 2 or 3 unit projects as “residential” developments and use less stringent lending criteria for this type of project, whereas with larger developments they may require a greater percentage contribution of equity or a level of pre-sales.

Typically, you will need to provide 20 per cent of the funds for a 2 dwelling project and 30 per cent (or in today’s tougher lending environment up to 40 per cent) for larger projects, which lenders class as “commercial” loans.

So for a simple 2 townhouse or duplex development,  you should be able to obtain a development loan at 80% LVR.

This means if your total development cost is $3 million, your financier will expect you to contribute around $600,000 of your own equity into the project.

Not unlike a regular residential new build loan, development loans offer staged payments to be finalised at the end of each regular building stage being;

  • the deposit,
  • base stage,
  • frame stage,
  • lock up stage,
  • fixing stage;
  • balance of development funds supplied on completion of the project.

Development finance is different to ordinary investment finance as usually you can borrow the ongoing interest as part of your finance package.

This means you do not pay interest during the construction phase of your project, but the interest is capitalised.

In other words, the interest is added to the amount you owe at the end of each month and the next month you pay interest on the interest. However, you still won’t be able to exceed your total loan amount which will be, say, 80% of the development

Once you begin marketing and on-selling your project you would then commence repayments.

If you intend to retain your finished project (my preferred strategy), you would pay out the development loan by refinancing the property and taking out a long term investment loan.

However, as explained) at no stage will the banks allow your loan to go above the agreed maximum percentage, such as 80 per cent.

You therefore need to show your lending institution that you will be able to service the loan, including the interest repayments.

This means you may require different types of lending for the various stages of a project, including;

  • An acquisition or development loan to cover the purchase, development application and pre-construction costs.
  • A construction loan to cover the building of a project and
  • An investment loan if you are retaining your project as a long term investment.

Your Loan Application

To ensure you have the best possible chance of obtaining the development finance you require, you will need to put together a professional finance submission, a sort of “business plan” for your development project.

This should demonstrate to the lender that you can construct a viable project with numbers that “stack up” to make a financially successful development.

Loans for development finance require a detailed application, beginning with an executive summary that should point out the viability of the project and the design features of the development being considered.

Then each of following points should be explored in detail in your application;Your Loan Application

  • Site description
  • Zoning
  • Design Concept
  • Resume of your property manager and major consultants
  • Costings
  • Feasibility study
  • Projected sales figures
  • Net result
  • Timelines

Sources of Funding

Banks remain the major source of funding for developers and while most banks are keen to lend to experienced developers, however in the current stage of the property cycle, and in the wake of the 2018 Royal Commission into Banking, many of the major players are tightening their lending criteria.

As a result, second tier banks, private funders and joint venture funders are increasingly becoming a popular alternative for some developers.

Proficient mortgage brokers with the right expertise and knowledge can assist you when it comes to obtaining development funding.

Keep in mind that if you are undertaking a large project, your financing may need to be split over more than one lender and in this case particularly, a good mortgage broker can be of great benefit.


For larger projects most lenders require a certain level of pre-sales to minimise their risk of the development.

The percentage of the project they require to be pre-sold before they are prepared to hand over property development finance varies, but can be around 60 per cent. Obviously this is a way for lenders to minimise their risk.

By the way…you can’t use the funds from the pre sales to help fund your development – they have to remain held on trust.

Project Updates

Most lenders will require formal proof of budgetary and cash controls prior to and during the course of your development project.

This reassures them that you have done your homework and allowed for any budget blow outs or contingencies that may arise.

Before approving your loan, a lender may request all or some of the following elements; 

  • A fixed priced building contractProject Updates
  • Detailed construction costings from your builder or a quantity surveyor’s report
  • Evidence of pre-sales in the form of deposits that are required to be held in trust. These deposits are generally cash to the value of 10 per cent of the purchase price.

As the project progresses you will need to keep your financier updated with;

  • Progress claims made by the builder
  • Reports from your project manager
  • Cash flows and revised financial projections
  • Any delays in the project
  • Any changes to the feasibility study
  • Any sales that may have occurred

Prior to making progressive payments to the builder the bank will require assurance that the particular stage of construction they are paying for is completed.

Sometimes they even require proof that the builder has paid all of his suppliers and trades so no claim can come back to the lender.

To ensure that the building stage has been completed the bank may send out its own valuer or request certification from a project manager or quantity surveyor.

What lenders look for

When assessing your development, project lenders look carefully and critically at the quality of the security you are offering; that is the end product of the development.

Their primary considerations in doing do so are;

  • The fire sale price of the security. What would they achieve if they had to take possession as mortgagee and sell it? Hands of businessman
  • The end value of the dwellings you are building. If they are higher than the median price in your area they see these as lower quality security as they may be more difficult to sell.
  • The zoning of your security. Residentially zoned land is the most highly regarded as it is the easiest to sell. Rural properties would be seen as less secure and hence the banks will lend a lower proportion on these.
  • Lenders don’t like to lend against small apartments. If your apartment is less than 45 sq m the lenders will not be keen to lend on your project.
  • The postcode in which your development is situated. Lenders prefer to lend against properties in areas that have a long history of strong capital growth and in large population centres.
  • The usage of the security. Banks prefer to lend against the security of residential real estate compared to holiday resorts or serviced apartments.

When assessing the feasibility of any potential development project, it is important to keep the lender’s criteria and expectations in mind.

After all, a development can look wonderful on paper, but unless it ticks all of the right boxes with the banks, it will never even get off the ground.

In Part 6 of our small development series, Bryce will consider how to source and secure the best potential development site at the right price.

If you want to learn more about the property development process you may be interested in How To Get Started in Property Development

You may also be interested in reading our Team Series or check out our graphic guide to the Property Development Process.


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Bryce is a property development specialist, having successfully sourced, project managed and completed hundreds of development projects for Metropole’s clients, helping them create substantial wealth.Visit

'Property development guide part 5 – Financing your project' have 23 comments

    Avatar for Bryce Yardney

    February 17, 2018 Adiel

    Its interesting how it works in the US compared to the UK


    Avatar for Bryce Yardney

    January 10, 2018 Fernando Bohorquez

    – Michael: thanks any way, for some reason I was expecting a little bit more from you , but that’s ok.- Good luck to you too


    Avatar for Bryce Yardney

    January 8, 2018 Fernando Bohorquez

    Very interesting, question for you:
    I got a row land ready to be developed, I have the project approved already by the town (jersey city ,NJ) to built 283 apartments, but I do not have money to buy the land and to built, where do you think I can get funds or an investor for this project?
    I appreciate any advise you can provide me


      January 8, 2018 Michael Yardney

      Fernando -I’m sorry to be blunt -if you need to ask me that question, you really shouldn’t be even considering getting involved in a project of that size -it’s much too risky for a beginner


        Avatar for Bryce Yardney

        January 8, 2018 Fernando Bohorquez

        Michael, so you think I do not have a good knowledge of my acquisition cost, soft cost, construction cost, rentals and/or sales prices for this project in order to get funds?


          January 8, 2018 Michael Yardney

          Fernando – clearly I know nothing about you, so please do not be offended.
          Property development is a game of finance with some real estate thrown in the middle.

          My assumption was based on the fact that you don’t have the financed to undertake such an ambitious development.
          How many development projects have you successfully completed?


            Avatar for Bryce Yardney

            January 9, 2018 Fernando Bohorquez

            Understood, don’t worry.
            Our team has been into the construction business for over 40 years, so trust me when I tell you we know how to built, we understand all and every one of the steps to get the job well done ,finance included. The difference now with this and 2 other projects is to get them financed and close the “circle”.
            Yes, you are right we don’t have the financed to undertake these projects, but we have the knowledge to do it.

            January 9, 2018 Michael Yardney

            Thanks for explaining that – good luck with your project

    Avatar for Bryce Yardney

    October 26, 2017 Frank

    If we already own the property, are you suggesting that we will also be asked to contribute 20% of the proposed development costs too in order to obtain construction finance?


      October 26, 2017 Michael Yardney

      Yes Frank – plus you’ll need to pay for all the “soft costs” that the banks won’t fund – consultants, fees, interest etc


    Avatar for Bryce Yardney

    January 5, 2017 Arthur Jamieson

    I have an approved 8 townhouse site ….I own the property and have 30% of the funds required to build the project…The housing commission have shown interest in a long term lease of tge completed project….do you think the bank will finance the project on this basis?…would a letter of intent from the HC help secure the funding?


      January 5, 2017 Michael Yardney

      Arthur – the banks probably won’t lend you money ont he strength of an end tenant – they want to be sure you have the funds to complete the project and then if you’re planning to keep it as a long term investment -they will want to ensure you can hold the property under their current strict servicing criteria – which you probably won’t be able to.
      By the way…why have housing commission as a tenant? This would devalue your property.


    Avatar for Bryce Yardney

    May 31, 2016 ella

    Hi, can you recommend a broker, or private funding organisation, we are wanting to buy property and subdivide it an onsell the whole site.


      May 31, 2016 Michael Yardney

      Sorry – but there is currently little opportunity of making money buying, subdividing and flipping – that’s probably why you’re having difficulty getting finance


    Avatar for Bryce Yardney

    April 27, 2016 Damian

    Do any banks lend on the end value. to further iterate if I wanted to subdivide and build say 3 units with Say total value $1m and needing a loan of $700k all up giving me LMV of 70% in the end, could i get that loan out to pay for the subdivision costs or do i need a deposit upfront?


      April 27, 2016 Michael Yardney

      Damian – no it doesn’t work like that – banks want you to put in “hurt money” – you need more funds than you probably think


    Avatar for Bryce Yardney

    December 9, 2015 Sudath

    Great article! We are just started doing a feasibility study for a property we have a contract. Can you recommend someone who can help with development lending?


      December 10, 2015 Michael Yardney

      Sudath- yes it’s important to geta specialist in development lending. I would have thought your finance should have been in place before you went to contract


        Avatar for Bryce Yardney

        January 25, 2018 Paiboon Prayonghom

        I have clients who’s looking for projects loan in Thailand.Can yo provide project funder?
        Please advise


          January 25, 2018 Michael Yardney

          Paiboon – sorry our specialist property funders are only available to clients of Metropole


    Avatar for Bryce Yardney

    March 8, 2013 Lizzy

    That’s cool, I kind of like it, it gave me what I wanted. Kudos to Gavin


    Avatar for Bryce Yardney

    November 3, 2012 willie sanudiya

    it’s shorter and detailed.


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