Using vacant land as security for a business loan

Why land is treated differently

A house can be lived in or rented. A shop or warehouse can be leased. Vacant land, by contrast, produces nothing until something is built on it or it is sold. Its value depends on what could be done with it, which depends on zoning, approvals, services, access and physical constraints. And the pool of buyers for a vacant block, especially a large or unusual one, is usually smaller than for a finished home.

All of this makes lenders more cautious with land. That does not mean land cannot be used; it means the loan needs to be structured with the land’s realities in mind.

Zoning: the starting point

Zoning sets what can lawfully be built. Residential, commercial, industrial, rural and mixed-use zones each attract different buyers and support different values. Overlays add further controls, such as heritage, flooding, bushfire or environmental protection. Lenders check zoning and overlays early, using state planning portals and council information. A block zoned for medium-density housing in a growing suburb has a very different value and buyer pool from a block zoned rural on the edge of town.

Approvals: value that is earned

A development approval or subdivision approval can add significant value because it removes uncertainty for a buyer or builder. Lenders recognise this, but they still assess the land on market evidence rather than on hoped-for future values. Land with an approval in hand is generally easier to lend against than land with an application only lodged. Our guide on DA-approved land explains how approvals affect lending.

Services, access and constraints

Even well-zoned land can be expensive to develop if water, sewer, power or road access are missing. Slope, rock, flood risk, contamination, easements and vegetation controls can all add cost or reduce yield. Lenders take these into account because they affect what a buyer would pay. Survey plans, geotechnical reports and service authority letters, if you have them, help the assessment.

Location and buyer depth

Land in active, growing markets near existing infrastructure has more buyers. Land in remote areas or with limited demand may take a long time to sell. Lenders look at recent land sales nearby and how long they took. Where evidence is thin, they tend to be more conservative.

LVR expectations

Because of these uncertainties, land usually attracts a lower maximum LVR than built property. The exact figure depends on the lender and the specifics. If the land alone does not support the amount you need, adding another property as security, such as a home or investment unit, can bridge the gap. The equity release estimator models combined security.

Ask what your land could support before committing to a purchase or plan.

Holding costs and interest

Land costs money to hold: council rates, land tax, insurance, maintenance such as slashing and fencing, and sometimes consultants’ fees for planning work. Because the land earns nothing, interest is usually capitalised or prepaid so there is nothing to pay during the term. Include holding costs in the loan amount or budget for them separately.

Exit strategies for land loans

The exit for a land loan is usually one of these:

• Sale of the land, as is or after approvals add value.
• Construction finance once approvals are in place, which repays the land loan when the build starts.
• Refinance to a lender comfortable with the land once approved or improved.
• Another asset, such as the sale of a different property.

Approval timelines are notoriously uncertain, so set a generous term and plan a backup exit. See land awaiting rezoning or DA.

Illustrative example

Illustrative only. A builder owns a large residential block with no mortgage and wants to use it as security for a loan to fund materials for several current jobs. The land is zoned residential with services available, in a suburb with steady land sales. The lender assesses its value from recent block sales and offers a loan at a conservative LVR, with interest capitalised. The builder repays the loan from progress payments over the following months. The land was never sold; it simply provided security.

Rural and lifestyle land

Rural land and lifestyle acreage are assessed on local evidence, water and access, and the size of the buyer market. They often attract a lower LVR than suburban property. Combining them with a home or town property is common. Our guide on regional property as security covers this in more detail.

Common mistakes

• valuing land on its potential after approvals rather than today
• underestimating approval times and setting a term that is too short
• forgetting holding costs
• ignoring overlays or easements that limit use
• relying on a single exit with no backup

What to provide

• title details and survey plans
• zoning, overlays and any approvals or applications
• information on services and access
• any reports such as geotechnical or environmental studies
• details of any other property offered as security
• a clear description of the exit and timeline

Subdivided lots and englobo land

A single serviced lot in a new estate is assessed much like any residential block, with recent lot sales in the estate as evidence. Englobo land, a large unsubdivided parcel intended for future development, is different: its value depends on yield, approval pathway and infrastructure costs, and its buyers are mainly developers. Lenders take a more conservative view of englobo land and look closely at the planning pathway and the borrower’s development experience.

Keeping land secure and insured

Vacant land still needs care: fencing, weed control, public liability insurance and protection against illegal dumping. Lenders may ask about insurance, and neglected land can lose value or attract council notices. A tidy, insured site presents better and is easier to sell if the exit ever depends on a sale. Photos of the site in its current condition are a useful addition to any enquiry.

A sound loan on raw land

Land can be valuable security when the loan respects its limitations. Tell us about the land, its zoning and approvals, any other property you can offer and how you will repay, and a specialist will give you a realistic view of what is possible. There is no credit check when you first enquire, your enquiry stays with one team, and accurate planning information helps us respond quickly. Discuss your land.

Land held for future business use

Some businesses hold land for future premises, such as an industrial block bought years ago for expansion. That land can secure a loan for the business today, provided the exit is clear. Holding the land for future use is fine; it simply means the exit will usually be the business’s trading or another refinance rather than a sale of the land.