How does property development finance work?
Development finance funds property projects in staged drawdowns linked to construction milestones. Lenders typically advance up to 65% of GRV (Gross Realisation Value) and release funds as each stage is completed and certified. Terms run 6-24 months for small Melbourne projects.
The four stages of a development finance facility
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1
Land or site acquisition
Initial drawdown funds the land purchase or refinances existing site equity. Often paired with bridging if you're settling fast.
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2
Construction drawdowns
Funds released against completed stages — slab, frame, lock-up, fix-out, completion. Each stage requires a quantity surveyor (QS) report.
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3
Practical completion
Final drawdown when the project is signed off. Loan now sits at full balance against completed stock.
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4
Sell-down or refinance
Repay the loan from unit sales or refinance to long-term investment loans on retained stock.
How GRV drives your loan size
Development lenders don't lend against today's land value — they lend against tomorrow's finished value, called GRV (Gross Realisation Value). A $1.5M site that becomes four townhouses worth $1M each has a GRV of $4M. At 65% GRV, the lender will advance up to $2.6M total — enough to cover land, construction, and most soft costs.
For background on how lenders calculate ratios, see our LVR explained guide.
Bridging vs development finance — when to use each
| Feature | Bridging Loan | Development Finance |
|---|---|---|
| Purpose | Cover a property gap | Fund a build / subdivision |
| Drawdown | Single advance | Staged, linked to milestones |
| Term | 1-12 months | 6-24 months |
| LVR basis | As-is value, 65-75% | GRV, 60-65% |
| Best for | Buy-before-sell, settlement | 2-10 unit builds, subdivisions |
Presales — when do they matter?
For projects above ~$5M GRV or 6+ units, lenders often require presales (qualifying off-the-plan contracts) to reduce their risk. Typical thresholds are 50-100% debt cover from presale deposits. Smaller projects — duplexes, townhouse pairs — usually proceed without presales because the absolute risk is lower.
What you'll need to apply
- Feasibility: detailed cost plan, GRV by independent valuer, sales evidence
- QS report: quantity surveyor's construction cost estimate
- Builder credentials: licensed, insured, with relevant project experience
- Planning approval: permit issued or clear pathway
- Borrower experience: if it's your first build, expect tighter terms
- Exit strategy: presales, refinance evidence, or sales agency engagement
Worked example — 4-unit Hawthorn project
- Land cost: $1,800,000
- Construction cost: $1,600,000 (QS verified)
- GRV: $4,800,000 ($1.2M × 4 townhouses)
- Lender LVR: 65% × $4.8M = $3,120,000
- Borrower equity required: ~$280,000 plus interest reserve
- Term: 18 months
See our full development finance service page or talk to us about your specific feasibility.
People Also Ask
Yes, but expect lower LVR caps and stricter QS oversight. First-time developers often partner with an experienced builder or development manager to satisfy lender requirements.
Discuss your project →Slightly — typically 1.0-1.6% per month, reflecting longer terms and construction risk. Interest is usually capitalised into the loan, so you don't pay monthly during the build.
Usually no. Most lenders waive presales for small projects under ~$5M GRV with experienced borrowers and strong site fundamentals. Above that threshold, expect 50-100% debt cover requirements.
Get a feasibility review →Where this applies in Melbourne
See how this strategy plays out in the suburbs where we most often arrange this kind of finance.
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