Property development loans in Australia are short-term, secured finance used by developers to fund land acquisition and construction across 18 to 36 month build cycles. The four main structures are senior debt (major banks at 50-70% LVR), mezzanine debt (non-bank lenders at higher LVR and rate), preferred equity, and construction-specific facilities. Approval depends on pre-sales coverage, equity contribution, builder credentials and feasibility study quality.
10 min read | Property Development | Last reviewed June 2026
Property development finance in Australia is structured across four capital stack layers: senior debt, mezzanine debt, preferred equity and developer equity. This guide covers indicative LVR bands, pricing, pre-sales coverage thresholds and approval timelines for each layer, plus the typical capital stack structure for a $100M residential project.
How property development loans work
Development loans are short-term secured facilities used to fund land acquisition and construction. Three structural features distinguish them from standard investment property mortgages:
- Drawdown in stages: funds are released against construction milestones (slab, framing, lockup, completion), not paid in full at settlement
- Capitalised interest: interest accrues into the loan balance rather than being serviced monthly, freeing project cash flow
- Bullet repayment: principal and capitalised interest repay in a single bullet at completion from end-sales of completed stock or refinance to investment debt
The four capital stack layers
The capital stack on a typical residential development project consists of four layers, each carrying different risk, return and security positions:
| Layer | Source | Indicative cost | Position |
|---|---|---|---|
| Senior debt | Major banks, regional banks | 7 to 9% p.a. | First-ranking security |
| Mezzanine debt | Non-bank lenders, specialist funds | 12 to 18% p.a. | Second-ranking security |
| Preferred equity | Family offices, private credit | 15 to 25% return + share | Subordinate to debt, above common equity |
| Developer equity | Developer balance sheet, JV partners | Residual project return | Lowest in stack, highest risk and return |
Senior debt: major banks and pricing
The major Australian bank lenders for residential development finance are CBA, NAB, Westpac, ANZ, Macquarie and Bankwest. Each maintains a dedicated property development credit team. Standard senior debt facility structure:
- LVR: 50 to 70 percent of gross realisation (GRV) or total development cost (TDC), whichever lower
- Term: 18 to 36 months with extension options at lender discretion
- Drawdown: progressive against monthly QS certificates
- Pricing: bank bill swap rate plus margin (typically 250 to 400 basis points), 7 to 9 percent all-in 2026
- Establishment fee: 1.0 to 1.5 percent of facility limit
- Pre-sales requirement: 60 to 100 percent debt coverage from qualifying pre-sales
Mezzanine debt and non-bank lenders
Mezzanine debt sits between senior debt and equity in the capital stack. It is used when the senior facility does not cover full project cost minus equity. Mezzanine providers in Australia 2026:
- Specialist non-bank funds: Qualitas, MaxCap, Wingate, Trilogy Funds
- Family office credit programs: increasing participation through 2024 to 2026
- Private credit managers: KKR, Brookfield and other global allocators with Australian presence
Indicative mezzanine pricing 2026: 12 to 18 percent per annum, with establishment fees of 2 to 3 percent and exit fees of 0.5 to 1.5 percent. Typical mezzanine LVR adds 10 to 15 percent on top of senior debt, taking combined LVR to 75 to 85 percent.
Preferred equity and developer equity
Where senior plus mezzanine is insufficient to bridge to required equity, preferred equity participation can close the gap. Preferred equity holders receive a fixed preferred return (typically 15 to 25 percent) plus a share of project profit on completion.
Developer equity sits at the bottom of the capital stack. It carries the highest risk but receives all residual returns above the priority claims of senior debt, mezzanine and preferred equity. Required equity contribution on senior bank facilities is typically 20 to 30 percent of total project cost.
Indicative capital stack for a $100M project
For a $100 million total development cost residential project (typical mid-rise apartment building, 80 to 120 units):
| Layer | Amount | % of stack |
|---|---|---|
| Senior debt (60% TDC) | $60M | 60% |
| Mezzanine debt (15% TDC) | $15M | 15% |
| Preferred equity (10% TDC) | $10M | 10% |
| Developer equity (15% TDC) | $15M | 15% |
| Total | $100M | 100% |
The capital stack structure varies materially by lender, project, location and developer track record. Tier-1 developers like Billbergia with established lender relationships can often secure senior debt at the upper end of LVR bands (65 to 70 percent) on standard terms, reducing reliance on more expensive mezzanine and preferred equity layers.
Pre-sales coverage and lender requirements
Pre-sales coverage is the single most consequential variable in senior debt approval. The standard tests:
- Debt coverage ratio: contracted pre-sales value as a percentage of senior debt amount. Major banks typically require 60 to 100 percent
- Foreign buyer cap: typically 25 to 35 percent of pre-sales by value
- Single buyer cap: typically 15 to 20 percent of pre-sales by value
- Price band restrictions: lender may exclude pre-sales above or below specific price thresholds
- Contract form: standard contract with 10 percent deposit paid; deposit bonds accepted by most lenders
- Sunset clause: contract sunset date must align with construction program plus reasonable buffer
Frequently asked questions
A property development loan is short-term secured finance used by developers to fund land acquisition and construction across 18 to 36 month build cycles. Loans are typically drawn down in stages against construction milestones, with interest capitalised into the facility. Repayment occurs at completion through end-sales or refinance.
Major Australian banks typically lend 50 to 70 percent LVR on residential development projects. Non-bank lenders extend LVR to 75 to 80 percent at materially higher rates. The combined senior plus mezzanine stack rarely exceeds 85 percent without preferred equity participation.
Major banks typically require 60 to 100 percent debt coverage from qualifying pre-sales. Non-bank lenders accept lower coverage (40 to 60 percent) at higher pricing. Qualifying pre-sales must have 10 percent deposits paid, with foreign buyer caps and price band restrictions applying per lender policy.
Senior bank lenders typically require 20 to 30 percent equity contribution measured against total project cost. The equity must be in place before construction drawdowns begin. Land equity (the difference between purchase price and current market value) counts toward the requirement on standard senior debt facilities.
Senior bank approvals typically run 8 to 16 weeks from formal application submission. Non-bank lenders compress this to 4 to 8 weeks. Mezzanine facilities typically run in parallel to senior approvals.
Mezzanine debt sits between senior debt and equity in the capital stack. It is more expensive than senior debt (typically 12 to 18 percent interest versus 7 to 9 percent for senior) and is used when the senior facility does not cover full project cost minus equity. Lenders include specialist non-bank funds, family office syndicates and private credit managers.
Preferred equity is a hybrid instrument where the investor receives a fixed preferred return (typically 15 to 25 percent) plus a profit share on project completion. It sits below mezzanine debt in the capital stack but above developer common equity. Preferred equity is increasingly common on larger projects.
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Information current as of June 2026. Sources: APRA, ASIC, RBA, KPMG Australian Real Estate Insights, Qualitas, MaxCap published lending guidelines. Indicative pricing and structures only; actual terms depend on project, lender and developer specifics. General industry commentary, not financial advice.
