How to Finance a Multi-Unit Development Site

Understanding Development Site Finance in Bentleigh East

Financing a multi-unit development site requires a lender willing to fund land acquisition and construction across multiple dwellings, with repayments structured around your ability to presell or complete the project. Most lenders treat these as commercial-style propositions rather than residential construction loans, which means they assess your experience, presale contracts, and the site's viability before committing.

Bentleigh East sits within the City of Glen Eira, an area with ongoing apartment and townhouse development activity near Centre Road and the railway line. Lenders familiar with the suburb recognise the demand for medium-density housing, but they still want evidence that your project aligns with local planning overlays and that you've secured council approval before they release funds for construction.

Consider a buyer who purchases a 1,200-square-metre block zoned for residential growth, with plans to build four townhouses. The land costs $1.8 million, and the build is estimated at $1.2 million across all units. A lender structures this as a land loan with a construction facility attached. The land loan is interest-only during the build, and the construction facility releases funds progressively as each stage is completed. The buyer presells two of the four townhouses before construction starts, which satisfies the lender's presale requirement and reduces the loan-to-value ratio once those contracts settle.

What Lenders Look for in Multi-Unit Development Applications

Lenders assess your building experience, the feasibility study, presale commitments, and whether you're using a registered builder under a fixed price building contract. They want to see that you've accounted for holding costs, that the project can be delivered within the agreed timeframe, and that the end value supports the loan amount.

If you're an owner builder without prior development experience, most mainstream lenders will decline the application. If you've completed at least one similar project, or if you're working with a builder who has a proven history in multi-unit work, your options increase. Some lenders will accept a cost plus contract if the builder is well established and the cost estimates are backed by quantity surveyor reports, but fixed price contracts are preferred because they limit blowouts.

Presales are typically required for developments with four or more units. The percentage varies by lender, but 50% to 70% presold by value is common. If you're building three townhouses, presales may not be mandatory, but they improve your borrowing capacity and reduce the deposit required. In the Bentleigh East market, where demand for townhouses near Bentleigh station and local schools is consistent, preselling is often more feasible than in fringe suburbs.

How the Progressive Drawdown Works

Construction funding is released in instalments as the build reaches defined milestones. The lender appoints a valuer or building inspector to confirm each stage is complete before releasing the next progress payment. You only pay interest on the amount drawn down, which keeps costs lower during the early stages.

The typical progress payment schedule for a multi-unit site includes a deposit to the builder, a slab stage draw, frame stage, lockup, fixing, and practical completion. Each draw is a percentage of the total build cost, and the lender holds back a small retention amount until final inspection. If you're building four townhouses simultaneously, the schedule may be structured so that each dwelling progresses together, or it may allow one or two to be completed ahead of the others if that aligns with your presale settlements.

In the scenario described earlier, the buyer's construction facility released $300,000 at slab stage, $400,000 at frame, $300,000 at lockup, and the balance at practical completion. The two presold townhouses settled within six weeks of completion, and the buyer used those sale proceeds to reduce the loan balance before listing the remaining two. The progressive drawdown structure meant interest during construction was based on the amount actually advanced, not the full $1.2 million build cost.

Structuring the Land Acquisition Separately

Most lenders separate the land purchase from the construction funding. You settle the land first using a standard loan, then the construction loan facility is activated once you have council approval and a signed building contract. This structure allows you to secure the site while finalising plans, but it also means you're paying interest on the land before construction starts.

If you're purchasing the land with the intention to develop, factor in the holding period between settlement and the first construction draw. For a project in Bentleigh East, that might be six to twelve months depending on how quickly you move through the development application and building permit process. Some buyers try to shorten this by purchasing land that already has approved plans, which reduces the time between acquisition and commencement.

Your deposit for the land and construction package typically ranges from 20% to 30% of the total project cost, depending on your presales and experience. If you're borrowing $3 million across land and construction, you'll need at least $600,000 in genuine savings or equity, plus another $100,000 to $150,000 for council fees, consultant reports, and legal costs. Lenders may reduce the deposit requirement if you've presold a significant portion of the development or if you're contributing substantial equity from another property.

Interest-Only Repayments During Construction

Most development loans are structured as interest-only during the construction phase, with the option to convert to principal and interest once the project is complete. This keeps your repayments lower while the site is generating no income, and it allows you to use cash flow for building expenses rather than loan reduction.

Once the dwellings are complete, you can either sell them and discharge the loan, or retain them as investment properties and refinance onto a standard loan product. If you're keeping one or more units, the lender will reassess your borrowing capacity based on the rental income and your ability to service the remaining debt. Some buyers build with the intention to hold one or two townhouses long term, which requires planning the loan structure so that individual titles can be split and financed separately.

Interest rates on construction finance for multi-unit developments sit higher than standard home loan rates, reflecting the increased risk and complexity. Expect a margin of 1% to 2% above the lender's standard variable rate, with the option to fix once construction is complete. Some lenders charge a Progressive Drawing Fee for each valuation and draw, typically $300 to $500 per inspection, which adds to your upfront costs.

Council Approval and Development Application Timing

Lenders won't release construction funds until you have a building permit and all relevant council approvals in place. If your development application is still pending, you can secure land finance, but the construction facility remains inactive until the permit is issued. For sites in Bentleigh East, the City of Glen Eira requires compliance with the Neighbourhood Residential Zone or General Residential Zone, depending on location, and developments must meet minimum garden area and setback requirements.

If your project requires a planning permit due to density or height, factor in three to six months for council assessment and any objections. Lenders prefer sites that are already zoned appropriately and don't require discretionary planning decisions, because delays in approval can push your project timeline out and increase holding costs. If you're purchasing a site that needs rezoning or a significant variation, expect fewer lenders to be interested, and be prepared for higher deposit requirements.

Using Equity from Your Existing Home

If you own a home in Bentleigh East or elsewhere with sufficient equity, you can use that property as security to reduce the cash deposit required for your development site. The lender takes a mortgage over both your home and the development site, which increases your borrowing capacity but also increases your risk if the project doesn't proceed as planned.

This approach is common among buyers who are completing their first or second development, because it allows them to move forward without liquidating other investments or savings. The lender will still assess your ability to service both loans during construction, and they'll limit your total borrowing to a combined loan-to-value ratio that reflects the risk across both properties. If your home is worth $1.2 million with a $400,000 mortgage, you might access $400,000 in usable equity, which could cover the deposit on a smaller development site or reduce the amount you need to borrow against the new land.

Choosing a Builder with Multi-Unit Experience

Lenders place significant weight on the builder's track record, particularly for projects involving multiple dwellings on a single site. A registered builder who has completed similar developments in the area will meet lender criteria more readily than a builder whose experience is limited to single dwellings or renovations. The builder's financial position also matters, because lenders want assurance that the builder can complete the project even if there are delays or cost variations.

Your building contract should include a detailed progress payment schedule that aligns with the lender's draw schedule. If the builder requests payments that don't match the lender's milestones, you'll need to negotiate a revised schedule or cover the gap yourself. Most builders working on multi-unit projects are familiar with lender requirements and will structure their invoicing accordingly, but it's worth confirming this before signing.

The builder also needs to provide insurance, including home warranty insurance for each dwelling, and the lender will require proof of this before releasing funds. For developments in Bentleigh East, builders typically work with plumbers, electricians, and other sub-contractors who are familiar with local council standards, which reduces the risk of delays due to non-compliance.

When to Speak with a Mortgage Broker

Multi-unit development finance involves more moving parts than a standard home loan, and lender appetite varies depending on your experience, the site, and the presale position. A mortgage broker in Bentleigh East with access to construction loan options from banks and lenders across Australia can match your project to a lender who actively funds developments in the area and who understands the local council approval process.

If you're considering a site purchase but haven't yet engaged an architect or builder, it's worth discussing your borrowing capacity and deposit requirements before you commit. If you're already partway through the planning process, a broker can help structure the loan so that land acquisition and construction are sequenced in a way that minimises interest costs and meets presale requirements.

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