Development Funding Explained

By Oakwood Finance – Award-Winning Mortgage and Finance Brokers

Property development can be one of the most effective ways to build wealth, but it often requires specialised finance solutions that differ significantly from a standard home or investment loan. Whether you’re planning a duplex, townhouse project, apartment development or commercial construction, understanding how development funding works is essential.

At Oakwood Finance, we help developers, investors and business owners secure funding solutions tailored to the scale and complexity of their projects.

What Is Development Funding?

Development funding is a specialised form of finance designed to support the acquisition, construction and completion of property development projects.

Unlike traditional residential lending, development finance is assessed primarily on the viability of the project itself, including:

• Location of the development
• Project feasibility
• Developer experience
• End value of the completed project
• Construction costs
• Presales (where required)
• Financial position of the borrower

Development funding can be used for:

• Duplex construction
• Townhouse developments
• Apartment projects
• Land subdivisions
• Mixed-use developments
• Commercial property developments
• Industrial projects

How Development Funding Works

Development finance is typically advanced in stages rather than as a lump sum.

The lender generally funds:

Site Acquisition

Funding may be provided for purchasing the development site, subject to valuation and project assessment.

Construction Costs

Construction funds are usually released progressively as building milestones are completed.

These stages commonly include:

• Site preparation
• Slab or foundations
• Frame
• Lock-up
• Fit-out
• Practical completion

Progress payments help ensure funds are used appropriately throughout the construction process.

Understanding Loan-to-Cost and Loan-to-Value Ratios

Development lenders generally assess projects using two key metrics.

Loan-to-Cost Ratio (LTC)

This measures the percentage of total project costs funded by the lender.

Project costs may include:

• Land acquisition
• Construction costs
• Professional fees
• Council contributions
• Interest costs
• Contingency allowances

Loan-to-End-Value Ratio (LVR)

This measures the loan amount against the projected completed value of the development.

Lenders typically evaluate both ratios when determining funding availability.

What Lenders Look For

Project Feasibility

A detailed feasibility assessment is one of the most important components of a development application.

Lenders will review:

• Land value
• Building costs
• Forecast sale prices
• Project profit margin
• Risk factors
• Market demand

The stronger the feasibility, the more attractive the project becomes from a lender’s perspective.

Developer Experience

Experienced developers are generally viewed more favourably by lenders.

However, first-time developers can still obtain finance, particularly where:

• The project is modest in scale
• Strong consultants are engaged
• Builder credentials are solid
• Financial capacity is demonstrated

Builder Selection

Lenders typically prefer licensed and experienced builders with a proven track record of delivering projects on time and within budget.

Financial Position

Lenders will assess:

• Assets and liabilities
• Existing debt commitments
• Available equity
• Cash reserves
• Income and servicing capacity

Strong financial backing can improve approval prospects and funding flexibility.

The Importance of Presales

For larger developments, lenders may require evidence that a percentage of the project has already been sold before approving construction finance.

Presales help demonstrate market demand and reduce lender risk.

Requirements vary between lenders and may depend on:

• Development size
• Property type
• Developer experience
• Location
• Market conditions

Smaller projects such as duplexes and townhouses may sometimes qualify for funding without extensive presale requirements.

Common Development Finance Structures

Small-Scale Development Finance

Suitable for:

• Duplex projects
• Dual occupancies
• Small townhouse developments
• Boutique residential projects

These projects often have simpler funding requirements and may benefit from a broader range of lender options.

Commercial Development Funding

Used for:

• Office developments
• Industrial complexes
• Retail centres
• Mixed-use projects

Commercial developments typically require more detailed analysis and specialised lending expertise.

Private and Non-Bank Funding

Some developers choose private or non-bank funding solutions when:

• Timelines are tight
• Projects are non-standard
• Major banks have restrictive policies
• Flexible structures are required

These lenders may offer greater flexibility, although funding costs can be higher.

Common Challenges Developers Face

Insufficient Equity

Most lenders require developers to contribute a portion of project costs.

A broker can help identify funding solutions that maximise available equity while maintaining an appropriate risk profile.

Cost Escalation

Construction costs can change during a project.

Lenders often require contingency allowances to help manage unexpected expenses.

Complex Ownership Structures

Many developments are undertaken through:

• Companies
• Family trusts
• Unit trusts
• Joint venture arrangements

These structures can affect lender selection and funding strategy.

Servicing and Cash Flow

Development projects require careful planning to ensure interest costs and project expenses can be managed throughout the construction phase.

Why Working with a Specialist Finance Broker Matters

Development finance is significantly more complex than residential lending.

A specialist broker can help:

• Assess project feasibility
• Identify suitable lenders
• Structure funding effectively
• Negotiate terms and pricing
• Manage lender requirements
• Coordinate valuations and approvals
• Present the project professionally

Most importantly, the right broker helps position a development for both approval and long-term success.

How Oakwood Finance Can Help

At Oakwood Finance, we work with first-time developers, experienced investors and professional property developers to secure funding solutions across a wide range of projects.

Our team can assist with:

• Site acquisition funding
• Construction finance
• Residual stock lending
• Commercial development finance
• Trust and company structures
• Private and non-bank funding solutions
• Development feasibility reviews

We understand that every project is unique and take a strategic approach to finding funding solutions that align with your development objectives.

Final Thoughts

Successful property developments start long before construction begins. Securing the right funding structure can influence everything from project cash flow and profitability to future development opportunities.

Whether you’re planning your first duplex project or a large-scale commercial development, understanding your finance options is critical to achieving a successful outcome.

Speak with Oakwood Finance today to discuss your next development project and discover how specialist development funding can help bring your vision to life.