Securing the right funding structure is one of the most critical factors in the success of any property development. Whether the goal is to deliver a residential subdivision, construct a commercial facility or create a mixed-use development, the financial framework behind the project plays a decisive role in its viability and profitability.
Unlike standard business or investment loans, property development finance is structured to meet the unique needs and risks of construction-based projects. It typically involves multiple funding layers, milestone-based drawdowns and complex lender assessments. Developers who underestimate the complexity of these arrangements risk delays, higher costs or outright rejection from funders.
This is where the support of an experienced specialist advisor becomes essential. At Aberdeen Capital, we guide property developers and project stakeholders through the financial structuring process with clarity and expertise. In this article, we explain how development finance works in Australia, what lenders expect, and why engaging an expert can make all the difference in securing the right structure for your project.
What Is Property Development Finance
Property development finance refers to purpose-built funding for real estate construction projects. This form of finance is distinct from loans used to purchase existing properties or assets. Instead, it supports the full lifecycle of a development, from land acquisition and planning through to construction and sales.
The most common projects requiring development finance include:
- Multi-unit residential developments such as townhouses or apartments
- Commercial buildings including offices or retail complexes
- Industrial sites including warehouses and logistics centres
- Mixed-use developments that combine residential, commercial and retail space
- Subdivision and land preparation projects
What sets this type of finance apart is that it is drawn in stages. Rather than providing the full amount upfront, lenders release funds progressively as the project meets specific construction milestones. These stages are verified by independent quantity surveyors or valuers.
You can learn more about how these facilities work by visiting our Property Development Finance service page.
How Development Funding Is Structured
Property development finance is typically arranged using a blend of senior debt, secondary funding and equity. Understanding how each layer functions is crucial to building a sustainable capital structure.
Senior Debt
Senior debt is the main loan secured against the development site through a first mortgage. This is the base layer of finance and is usually provided by a bank or specialist lender. Senior debt often covers between sixty and seventy percent of the total development cost. It is drawn down in line with construction progress and requires extensive documentation including project feasibility reports, valuations, and presale evidence.
Mezzanine or Secondary Funding
Mezzanine funding is used when senior debt and developer equity do not fully cover the project’s funding needs. This layer carries more risk and therefore commands higher interest rates. It is usually secured by a second mortgage or a priority agreement and may cover up to ten or fifteen percent of the remaining cost. It is particularly useful in larger or more ambitious developments where equity preservation is a priority.
Developer Equity
Equity is the capital contributed directly by the developer or the project sponsors. This may come in the form of cash, land value or external investors. Equity signals commitment to the project and provides a buffer that reduces risk to lenders. Most financiers expect developers to contribute at least ten to twenty percent of total project cost.
Understanding LVR and LTC
Lenders assess funding proposals using two key ratios:
- Loan to Value Ratio (LVR) measures the amount of finance against the gross realisation value of the completed development
- Loan to Cost Ratio (LTC) assesses the loan amount as a percentage of total development cost including land, construction and soft costs
These benchmarks influence how much finance can be approved and what level of equity is required. Advisors help ensure these ratios are balanced correctly based on lender expectations and project feasibility.
Key Risks in Property Development Funding
Every development project carries inherent risks, which lenders evaluate in detail before committing to finance. Understanding these risks is the first step toward creating a funding application that meets lender standards.
Market Risk
Shifts in property market conditions can impact the projected sale price or rental income of a development. Changes in interest rates, buyer confidence or regional demand may reduce the gross realisation value of the project. Lenders closely monitor these dynamics and may require updated market data or presales to offset exposure.
Construction and Cost Risk
Unforeseen construction delays, labour shortages, supply chain disruptions or budget overruns can all increase project cost and timeline. Lenders prefer projects with fixed price contracts, experienced builders and well-defined construction schedules to mitigate these risks.
Exit Risk
Lenders want to see how the loan will be repaid. In most cases, this involves the sale or refinance of the completed development. If a project does not generate sufficient settlement proceeds or takes longer than expected to sell, the repayment timeline is compromised. This is why many lenders require presale commitments as a condition of funding approval.
To address these risks, working with experienced Risk Management Consultants can help identify vulnerabilities in the project plan and proactively mitigate them before approaching lenders.
Why Specialist Advisors Matter
While developers understand site acquisition, design and construction, funding is often one of the most complex and misunderstood elements of the process. Specialist advisors bridge the gap between the developer and the lender by aligning project feasibility with credit requirements.
Access to Lenders Across the Market
An experienced advisor has access to a broad panel of bank and non-bank lenders, each with their own preferences, risk appetite and assessment criteria. This increases the likelihood of securing a competitive offer that aligns with the project timeline and capital structure.
Understanding Project Feasibility and Credit Requirements
Advisors understand how lenders interpret feasibility data, build risk assessments and evaluate exit strategies. They help developers translate their commercial vision into a funding proposal that meets underwriting standards and addresses key lender concerns.
Negotiating Better Terms
Interest rates, drawdown schedules, fees and covenants all form part of the funding agreement. Advisors are skilled negotiators who ensure that the structure reflects the true needs of the project, not just the preferences of the lender. This includes avoiding excessive restrictions or security requirements where possible.
Advisors also support the broader development strategy. At Aberdeen Capital, we offer integrated Capital Management Solutions to ensure that your capital planning supports long-term profitability and portfolio growth.
How Advisors Improve Funding Outcomes
Advisors do more than facilitate finance. They actively improve the quality of funding outcomes by shaping the structure and reducing barriers to approval.
Stronger Capital Efficiency
By blending senior debt, mezzanine and equity in the right proportions, advisors help developers preserve capital while meeting lender expectations. This allows more projects to proceed without overextending available funds.
Lower Risk Exposure
By reviewing project assumptions and correcting weak areas in the application, advisors reduce the likelihood of funding delays, lender withdrawal or unfavourable terms. This proactive approach protects both the timeline and the financial viability of the development.
Faster Approval and Funding Release
A well-structured application that anticipates lender questions and presents complete, credible information is more likely to be approved quickly. Advisors coordinate documentation and streamline communication throughout the funding process.
How Aberdeen Capital Supports Property Developers
At Aberdeen Capital, we work with property developers, project managers and investors to structure and secure high-quality development finance solutions.
Our team has extensive experience in both large-scale and boutique developments across residential, commercial and industrial sectors. You can learn more about our advisory credentials on the Our Team page.
We support property developers through the full funding journey with:
Independent, Strategic Advice
We are not aligned with any lender, which means we represent your project interests at every stage. Our focus is on building funding structures that work for your project, not just fit lender templates.
Access to a Broad Lender Network
Our network includes major banks, specialist construction lenders and private capital sources. This gives us the flexibility to tailor funding to each project’s complexity, location and risk profile.
End-to-End Support
From initial feasibility reviews through to lender engagement and settlement, we provide continuous support and clear communication. Our goal is to remove funding obstacles and keep your development on schedule.
If you are seeking property development funding, speak to a development finance advisor for an independent discussion of your project needs.
Frequently Asked Questions
What is property development finance?
It is a funding solution designed specifically for construction and development projects including residential, commercial and mixed-use developments.
How much equity do developers usually need?
Developers typically need to contribute between ten and thirty percent of the total project cost to demonstrate commitment and reduce lender risk.
Can development finance be used for residential and commercial projects?
Yes. Development finance is suitable for a wide range of asset types including townhouses, apartments, retail precincts and industrial sites.
Why is specialist advice important in development finance?
Because development finance is assessed differently from standard property loans. It requires an understanding of construction risk, presales, cost planning and exit strategy. Specialist advisors align these elements with lender expectations.
Can Aberdeen Capital help arrange development finance?
Yes. Aberdeen Capital provides independent advisory and property development finance services for projects across Australia, with access to a wide range of lenders and funding structures.
