If you’re new to property development but keen to get started, you’ll first need to understand how property development loans work.
Take a look at a beginner-friendly guide for first-time property developers in Melbourne. It explains how property development loans work, outlines the key requirements for securing finance and discusses common challenges that new developers face, along with practical tips to overcome those obstacles.
What are property development loans & how do they work?
Property development loans are a specialised type of finance that funds construction or major renovation projects. These loans are commonly used for residential subdivisions, multi-unit developments like townhouses or apartments, and large-scale commercial builds. Unlike standard home loans, development loans are structured around the project timeline, with funds released in stages tied to construction milestones such as land purchase, slab completion, lock-up, and final build. There are two main types of development loans. Residential development finance typically supports smaller-scale projects such as duplexes, townhouses or developments with up to four dwellings. On the other hand, commercial development finance applies to larger or mixed-use ventures, including retail spaces, office buildings or multi-storey residential complexes. During the construction phase, property development loans are generally interest-only, which makes it easier to manage cash flow. Interest rates vary depending on several factors, including the size and complexity of the project, assessed risk, the number of pre-sales achieved and the developer’s track record. These terms ensure that both lenders and developers manage financial risk while moving the project forward efficiently.Key requirements for securing a property development loan in Melbourne
1. Detailed project plan
Lenders expect a thorough and well-documented project plan before approving funding. The plan should include details of the site acquisition, relevant council development approvals, architectural drawings or building plans, a full breakdown of projected costs and a realistic construction timeline. A strong plan demonstrates preparedness and helps reduce the lender’s perceived risk.2. Financial viability assessment
Lenders closely examine the financial feasibility of your project, including reviewing feasibility studies, the projected end value of the development (also known as the Gross Realised Value or GRV), and fixed-price builder contracts. These factors help determine whether the project is financially sound and likely to generate a positive ROI.3. Pre-sales
For larger development projects, lenders usually require a percentage of the properties sold off-the-plan before approving the full loan. This pre-sale requirement, often between 50% and 70%, helps reduce the lender’s risk by confirming market demand and generating early cash flow.4. Equity contribution
Lenders expect borrowers to fund between 20% and 40% of the total project costs upfront. Loan-to-cost ratios vary depending on the lender and the specifics of the development, but are essential to demonstrate your financial commitment and thus reduce lending risk.5. Experience and track record
Lenders favour borrowers who have a proven track record in property development. However, first-time developers can still access finance if they have a strong team of professionals and reliable partnerships supporting the project.Common challenges first-time developers face & how to overcome them
Underestimating costs
One of the biggest downfalls for new developers is underestimating project costs. Avoid this by working closely with experienced quantity surveyors who can provide accurate cost estimates, and always include a contingency budget to cover unexpected expenses.Project delays
Delays can quickly escalate costs and jeopardise your project timeline. To minimise this risk, choose reputable builders and contractors who provide clear, realistic schedules and have a proven track record of delivering on time.Securing pre-sales
To boost pre-sales, partner early with experienced real estate agents who understand the local market. Offer incentives or flexible terms to help attract buyers off-the-plan.Navigating council approvals
Council approvals can be complex and time-consuming. Engaging a qualified town planner early in the process can help smooth development application (DA) approvals and avoid costly delays.Loan rejection due to inexperience
To improve your chances of securing a loan as a new developer, work with specialist mortgage brokers who understand development finance and can help package your loan application attractively for lenders.Get Started with Property Development in Melbourne
At Lend & Co, we specialise in development loans and tailor our services to first-time developers in Melbourne. Our expert brokers guide you through every step, from assessing your project’s finance needs to helping you secure the right loan with competitive terms. Contact us today to discuss your development plans and take the first step towards turning your vision into reality.
