Quick answer
Development site finance is a short-term secured loan that settles the purchase of land intended for development, before approvals or construction finance are in place. It is secured over the site, often with additional property, and assessed on the land's value, zoning and the planned exit. Interest can be capitalised while approvals progress, and the loan is usually repaid by construction finance or a sale.
Key points
- Settles development sites before banks or construction lenders will
- Secured over the site, often with additional property
- Interest capitalised while approvals progress
- Exit: construction loan, sale of the approved site or refinance
- Zoning, approvals and site constraints drive the assessment
Securing the site comes first
Every development starts with land, and good sites rarely wait. Vendors want certainty, competing developers are circling and agents favour buyers who can settle. Yet the finance that will eventually fund the project, a construction loan, is not available until approvals, pre-sales and feasibility are in place. Development site finance fills that gap.
How development site finance is structured
| Feature | Typical approach |
|---|---|
| Security | First mortgage over the site, often plus other property |
| Amount | Sized on land value, zoning and combined security |
| Interest | Capitalised while approvals progress |
| Allowances | Can include holding costs and approval expenses |
| Exit | Construction loan, sale of approved site, or refinance |
| Valuation | Not needed before approval; land assessed from evidence |
What lenders look at
- Zoning and permitted uses. What can be built as of right, and what needs approval.
- Approval pathway. Whether a DA has been lodged, its stage, and similar approvals nearby.
- Site constraints. Flooding, bushfire, heritage, contamination, easements and access.
- Comparable land sales. Recent sales of similar sites in the area.
- The developer. Track record, other projects and how the project will be funded.
- The exit. Which construction lender, what it will require, and the backup if approvals take longer.
Our guide on DA-approved land and lending explains how approvals change both value and lending options.
Holding the site through approvals
Approvals take time, and timelines are hard to predict. Capitalising interest means the developer does not need to fund monthly interest from other projects while the application progresses. Budget for rates, land tax and insurance, and allow a generous buffer in the term. The loans are flexible and can stay in place if council takes longer, but a realistic plan from day one keeps costs predictable. See land awaiting rezoning or DA.
Talk through your site and approval timeline with a specialist.
Additional security strengthens the deal
Because vacant land attracts a conservative LVR, many developers add another property, such as a completed project, an investment property or a home, as additional security. That can increase the amount available and improve the overall LVR. When the construction loan settles, the additional security can be released.
An illustrative site purchase
Illustrative only. A small developer secures an option on a residential site zoned for medium density, suitable for six townhouses. The vendor wants settlement in eight weeks. The developer’s construction lender will not fund until a DA is approved and pre-sales are in place. A private first mortgage over the site, with a second mortgage over the developer’s completed duplex, settles the purchase. Interest is capitalised. The DA is approved eleven months later, the construction loan settles, and the private loan is repaid in full.
Transfer duty and GST
Development site purchases can attract significant transfer duty, and GST may apply depending on the vendor and the land. The margin scheme is sometimes used in development transactions. Confirm both with your adviser and include them in the funding plan. See stamp duty funding.
Common pitfalls
- assuming approval will be granted for the maximum yield
- underestimating approval timelines
- forgetting holding costs in the loan amount
- relying on a single construction lender without checking its requirements early
- overlooking site constraints that add cost or reduce yield
Feasibility still matters
A private lender focuses on the land’s current value and the exit, but you should still run a full feasibility before buying: realistic yield under the planning controls, construction costs with contingency, sales prices supported by evidence, finance costs including the holding period, and a margin that survives a few things going wrong. A feasibility that only works on optimistic assumptions is a warning sign. Lenders who see a sober feasibility are more comfortable, and so should you be.
Options and staged settlements
Some developers secure sites through options, deferred settlements or staged payments that give time to obtain approvals before completing the purchase. These structures can reduce the amount of finance needed up front. Where an option is about to expire or a deferred settlement date is approaching, a private land loan can fund the completion. Tell your specialist about any option or staged arrangement so the loan fits around it.
Working with your planning consultant
Your planning consultant’s view of the approval pathway is one of the most useful documents you can share. It tells the lender how realistic the timeline is, what risks exist and what the likely outcome looks like. A short letter or report summarising the pathway can strengthen the application considerably.
Secure the site while you can
The best sites go to developers who can commit. Tell us about the site, its zoning and approval status, the purchase terms, any additional security and your exit plan, and a specialist will tell you whether the purchase can be funded and on what basis. You can enquire with no credit check, your information stays with our team, and accurate planning details help us respond with confidence. Discuss your site.
Frequently asked questions
Why won't banks fund development site purchases?
Banks are cautious about land without approvals because it earns no income and its value depends on future planning outcomes. They often require large deposits or decline until a development approval is in place.
How much can I borrow against a development site?
It depends on the land's value, zoning, approvals and the other security available. Land usually attracts a more conservative LVR than built property.
Can the loan cover holding costs and approval fees?
Yes, where the exit supports it. Interest can be capitalised and allowances made for rates, consultants and application fees.
What exit do lenders prefer?
A construction loan once approvals are in place, or the sale of the site with approvals that add value. A backup exit strengthens the deal.
Prefer to start now? Enquire here
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