What Lenders Actually Test in a Development Feasibility
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Development feasibility · Lender assessment · Prudential and disclosure rules
Australian development lenders do not all test the same feasibility against the same rule. Banks are affected by APS 112 capital treatment, registered retail mortgage schemes disclose against RG 45 benchmarks, and wholesale or private lenders apply their own credit policies. Those frameworks can rebuild the same project into different cost bases, valuation limits, presale requirements and facility sizes. Neither APS 112 nor RG 45 sets a minimum development profit margin.
Quick Answer
A lender does not test your development feasibility against one standard. It rebuilds your cost base on its own definitions, then measures the debt against whichever rulebook binds it. No published rule sets a minimum profit margin, and the ratio the market quotes most is in none of them.
Also called: a development feasibility study, a property development feasibility, a development appraisal, or, when the question is what the land can carry rather than what the project earns, a residual land value calculation.
What does a lender actually test in a development feasibility?
A lender tests whether the facility you are asking for stays inside every constraint that actually applies to that lender after it has rebuilt your costs, value, presales and cash flow on its own definitions. The result is usually the lowest applicable debt ceiling, not the profit number in your base-case feasibility.
The useful reframe is that you are not submitting one document to one universal test. The same model can be pulled apart into a cost side, a value side, a presale schedule, a peak-debt curve and a cost-to-complete test, then rebuilt differently depending on the lender. That is why two lenders can return different facility sizes without either of them having made an arithmetic error.
Two published frameworks matter most. APS 112 affects APRA-regulated banks and other ADIs through prudential capital treatment. RG 45 sets disclosure benchmarks for registered retail mortgage schemes. Wholesale and private lenders are governed by neither of those instruments and instead apply their own credit policies, often expressed through LTC, LVR, GRV, presales and exit requirements. Market convention describes appetite; it is not regulation.
Where you are in the sequence changes which part of this page matters. If you are still deciding what to pay for the site, start at what you can afford to pay for the land. If you have a model and you are about to submit it, start at why your cost base is not the lender's cost base. If a number has already come back lower than you expected, go straight to what happens when the number comes back short.
For how the resulting facility is structured, priced and drawn, our guide to property development finance covers the product mechanics this page deliberately leaves alone.
What should you check next, depending on where your development is up to?
The next finance question changes as the project moves. Before you buy the site, the binding question is what the land can carry. Once you control the site, it becomes how much debt and equity the lender will recognise. After approval, the pressure moves to quantity-surveyor cost-to-complete, drawdowns and the exit. A useful feasibility should answer the next funding question before it becomes urgent.
| Where the project is now | What the developer usually searches next | What happens if the answer is weak |
|---|---|---|
| Before signing for the site | What can I actually afford to pay for the land? | If the land price is above the debt and equity the finished project can support, the equity gap is baked in before construction starts. |
| Site under contract or DA still moving | What has to happen before construction finance can be approved? | Valuation, approvals, building documents and the funding sequence become the gating items; pre-construction development finance may be a separate problem before the senior construction facility is ready. |
| Ready to approach lenders | How much can I borrow? How much equity do I need? How many presales count? | The lender rebuilds the model, applies the constraints that actually apply to it and sizes the facility to the lowest binding limit. |
| The QS or valuer comes back lower | Why has an equity gap appeared, and how can it be filled? | Debt is resized or the developer must add cash, change the capital stack, reduce scope or improve the evidence behind value and cost. |
| Construction is underway | What happens if cost to complete rises? | The next draw can be re-tested against the remaining facility and remaining equity, with a cash top-up commonly required before further advances. |
| Completion is approaching | What if the units have not all sold when the development facility expires? | The exit becomes a sell-down, residual-stock refinance or hold strategy rather than an assumption left outside the feasibility. |
Which framework applies to your lender: APS 112, RG 45 or internal credit policy?
An APRA-regulated authorised deposit-taking institution is affected by APS 112, a registered retail mortgage scheme discloses against ASIC's RG 45 benchmarks, and a wholesale or private lender relies on its own credit policy. Those are different kinds of constraint, and the first job is to identify which ones actually apply before you compare any headline LTC, LVR or GRV ratio.
This single table is the comparison the fragments never make in one place, and it is the reason the same project can support materially different debt at two lenders without either of them being wrong.
| Test | Bank (APRA regulated ADI) | Retail mortgage scheme | Wholesale or private lender |
|---|---|---|---|
| Governing instrument | APRA Prudential Standard APS 112 | ASIC Regulatory Guide 45 | Internal credit policy, not a public prudential or disclosure threshold |
| Legal character | Binding prudential standard | Disclosure benchmark, reported on an if not, why not basis | Internal credit policy only |
| What the limit measures against | Qualifying development costs | Latest as if complete valuation | Whatever the credit policy names |
| Published reference point | For the 100 per cent residential ADC risk weight: total debt is less than 75 per cent of qualifying development costs | Benchmark 6: not more than 70 per cent of the latest as if complete valuation for development lending | No public regulator-set threshold |
| Presales condition | ✓ Qualifying presales at least 100 per cent of total debt, on exposures over $5 million | Not addressed in the benchmark | Set deal by deal |
| Published staged-funding position | Credit policy | Benchmark 6 states staged funding based on independent evidence of progress | Credit policy |
| Minimum profit margin | None set | None set | None published |
| Consequence of sitting outside it | 150 per cent risk weight on the exposure | Disclose the departure and explain why | Price and structure move instead |
| Where to read it | APS 112 Attachment A, paragraphs 27 to 30 | RG 45, Benchmark 6, paragraph RG 45.53 | Nowhere public |
Notice the profit row. Neither instrument sets a margin. That absence is the gap between what the rules set and what the market repeats, and it is dealt with in full at is there a minimum profit margin lenders require.
By the numbers
- 6 per cent The share of Australian financial system assets held by non-bank lenders, which is the part of the market that sits outside APS 112 entirely. Source: RBA Financial Stability Review, as at March 2026. A system level figure, not an indication of any lender's capacity on your project.
- Around $200 billion The estimated size of Australian private credit, approximately half of which is estimated to be invested in real estate related assets. This is where the third column of the table above is funded from. Source: ASIC Report 814, Private credit in Australia, as at September 2025. A market estimate, not a measure of available funding for any individual project.
- 100 to 50 per cent The reduction in the qualifying pre-sales requirement for residential development lending that APRA has proposed, from 100 per cent of total debt to 50 per cent. A proposal under consultation, not a rule. Source: APRA, Getting the balance right on financial resilience, as at June 2026. Submissions close 7 September 2026 and no outcome has been decided.
- 1 April 2027 The commencement date APRA has proposed for the credit risk capital changes, with finalisation flagged for the second half of 2026. Source: APRA, Getting the balance right on financial resilience, as at June 2026. A proposed date, subject to consultation.
General information only. Figures are indicative where marked and current as at the review date shown. Not financial advice; consider your own circumstances and speak to a broker.
The non-bank shift itself is covered separately in our note on builder finance and the non-bank shift. The point here is narrower. Establish which column your lender sits in before you build anything, because everything below depends on it.
Why does 75 per cent of qualifying development costs matter to a bank?
APS 112 does not prohibit a bank from lending above 75 per cent of development cost. For a qualifying residential ADC exposure, total debt below 75 per cent of qualifying development costs is one condition for the 100 per cent risk weight; other ADC exposures receive a 150 per cent risk weight. A bank may therefore set internal appetite around that capital treatment, but the 75 per cent figure is not a statutory borrowing cap.
APRA defines the exposure class first. Land acquisition, development and construction, or ADC, covers property exposures where the security predominantly relates to land acquisition for development and construction purposes, or the development and construction of any residential or commercial property. If your deal is in that class, the following applies to your bank.
For the concessional 100 per cent risk weight on a residential ADC exposure, APS 112 requires total debt to qualifying development costs to be less than 75 per cent, and where the exposure to the borrower is greater than $5 million in aggregate for a single development, qualifying presales for the underlying property must be at least equal to 100 per cent of the total debt.
The standard also requires the ADI to have a policy defining both qualifying presales and qualifying development costs. Every other ADC exposure takes a 150 per cent risk weight. Those provisions sit at APS 112, Attachment A, paragraphs 29 and 30, current as at August 2026.
In plain terms, a deal that misses either condition costs the bank materially more capital to hold, which is what you feel as a smaller facility, a higher price, or a decline. It is a capital requirement on the lender, not a pricing rule, and it is not an indication of your rate.
Two consequences follow, and both are worth planning around. First, the denominator is cost, not value. A rising market does not lift a bank's capacity on an ADC exposure the way it lifts capacity on a completed asset, so the profit you are making does not buy you debt. Second, the presale condition is tied to total debt rather than to total revenue, so a facility that grows during design development drags the presale requirement up with it.
Note what the example exposes. Your $10 million became the bank's $9.6 million before anybody argued about anything, and the $400,000 that disappeared came off the top of your borrowing capacity at 75 cents in the dollar. That gap is the subject of a section of its own, because it is where most of the surprise on a first development sits.
What does RG 45's 70 per cent as if complete benchmark mean?
RG 45's 70 per cent figure is a disclosure benchmark for registered retail mortgage schemes, not a statutory lending cap. For property-development loans held directly by the scheme, Benchmark 6 measures the loan against the latest as if complete valuation and requires any departure from the benchmark to be disclosed and explained.
The instrument is ASIC's Regulatory Guide 45, and the relevant provision is Benchmark 6, at paragraph RG 45.53.
It states that where the scheme directly holds mortgage assets and the loan relates to property development, funds are provided to the borrower in stages based on independent evidence of the progress of the development; that the scheme does not lend more than 70 per cent on the basis of the latest as if complete valuation; and that in all other cases the scheme does not lend more than 80 per cent on the basis of the latest market valuation.
Read that carefully, because it is the single most misquoted passage in Australian development finance. It is a disclosure benchmark, not a prohibition: a scheme that departs from it must say so and explain why, on an if not, why not basis. It binds registered retail mortgage schemes only, not banks and not wholesale lenders. And the 70 and the 80 are two different things, one a development limit on an as if complete valuation and the other a general limit on a market valuation. They are not a range.
That pair, presented online as a 70 to 80 per cent loan to cost range applying to lenders generally, has become the internet's standard answer to this question, and it is repeated back by AI answers that cite lender and broker pages rather than the regulator. It is a valuation basis benchmark for one lender type, converted into a cost ratio and applied to everyone. The number that actually governs a bank, the 75 per cent of qualifying development costs above, appears almost nowhere in that discussion.
Source for the wording above: ASIC Regulatory Guide 45, Mortgage schemes: Improving disclosure for retail investors, Benchmark 6 at RG 45.53, in the version issued 5 March 2026. It applies to registered schemes offering interests to retail investors and does not set a limit for your lender if your lender is not one.
What changes if APRA's pre-sales proposal commences?
If it commences as drafted, a bank could write the same facility on half the presale cover, because APRA has proposed lowering the qualifying pre-sales requirement for residential development from 100 per cent of total debt to 50 per cent of total debt. Nothing has changed yet, and nothing changes until APRA finalises.
This is not market speculation. It is APRA's own published proposal, in Getting the balance right on financial resilience, released 29 June 2026.
APRA states that it proposes to lower the qualifying pre-sales requirement from 100 per cent of the total debt to 50 per cent, and that for built-to-let structures it proposes to replace the pre-sales requirement with a new pre-lease requirement, on which it is inviting submissions about the appropriate calibration of coverage and the measurement unit. Where a development is partly built-for-sale and partly built-to-let, the two requirements would apply concurrently to the respective proportions.
Submissions close 7 September 2026. APRA has said it intends to finalise the credit risk capital changes in the second half of 2026, with a proposed commencement date of 1 April 2027. No outcome has been decided and this page states the current rule as the current rule.
| Question | Current position, August 2026 | APRA proposal under consultation |
|---|---|---|
| Qualifying presales test | At least 100 per cent of total debt where the relevant exposure is greater than $5 million and the bank is seeking the qualifying residential ADC capital treatment | Reduce qualifying presales to 50 per cent of total debt |
| Is it in force? | ✓ Yes, this is the current APS 112 position | No, it remains a proposal until APRA finalises the changes |
| Commencement | Current rule | 1 April 2027 has been proposed |
| Can the bank still ask for more presales? | ✓ Yes, internal credit policy can be stricter | ✓ Yes, the proposal would change capital treatment, not force a bank to reduce its own credit standard |
What it means for planning, if you are sizing a project that will go to credit in 2027 rather than this year, is that the presale campaign is the variable most likely to move.
On an illustrative $7.19 million facility that sits just below the 75 per cent cost boundary used above, cover at 100 per cent means about $7.19 million of qualifying contracts, while cover at 50 per cent would mean about $3.595 million. At an $800,000 average lot that is roughly nine contracts versus about five. Those figures are illustrative only, they assume the proposal commences unchanged, and they move with your lot mix, actual debt and the lender's qualifying definition.
Two cautions. The other qualifying criteria are unaffected, so the 75 per cent of qualifying development costs test and the $5 million threshold still stand as drafted. And the change is a capital treatment for the lender, not a promise about your deal: a bank whose own credit policy sets a higher internal presale expectation is free to keep it. Where presales cannot be achieved at all, the path is development finance without presales.
Does the size of your project change which lenders will look at it?
Yes, and the sharpest break sits at $5 million of exposure, because the APS 112 presale condition only attaches to exposures greater than $5 million in aggregate to a single development. Below that line a bank can take the concessional risk weight on the cost test alone, with no presale condition in the standard at all.
That one clause explains a pattern that looks irrational from the outside. A four lot townhouse project can often get bank funding with no presales, while an eight lot project on the same street cannot, and nothing about the quality of the two projects explains it. The exposure crossed a threshold in a capital standard.
| Exposure size | Does the APS 112 presale condition apply | Who typically looks at it | What usually decides the outcome |
|---|---|---|---|
| Under $5 million | No, the condition attaches above $5 million | Banks, non-banks and private funders all active | Your own serviceability and the builder, more than the presales |
| $5 million to about $20 million | Yes, at 100 per cent of total debt for the concessional weight | Banks with presales, non-banks without | Whether the presale schedule qualifies under the lender's own definition |
| Above about $20 million | Yes, and the cover is harder to assemble | Banks, institutional non-banks, and structured capital stacks | Sponsor track record, builder covenant and the capital stack behind the senior debt |
The size bands above describe how the market commonly behaves rather than any published rule, and individual lenders draw the lines differently. Which panel a project of your scale falls into is covered in more detail in our comparison of the five lot and twenty lot lender panels, and where the layers above the senior debt sit is in the capital stack entry.
The practical use of this section is staging. A developer who splits an eleven lot site into two stages is not being clever about construction, they are managing exposure against a threshold, and that decision belongs in the feasibility rather than in a conversation with the lender after the model is built. Staging costs money, in a second set of establishment fees, a longer overall programme and more capitalised interest, so it only pays when it moves you across a real line.
Can a strong feasibility still be declined because of the developer or builder?
Yes. A lender can reduce, condition or decline a development facility even when the feasibility clears its leverage tests, because credit also assesses who is delivering the project and whether that group can absorb problems. The spreadsheet answers whether the project can work; sponsor and builder assessment asks whether this borrower and delivery team can make it work.
There is a useful regulatory clue to that distinction. APRA's APS 113 supervisory slotting criteria for income-producing real estate expressly consider the sponsor or developer's financial capacity, track record with similar properties, management quality and the qualification of contractors. APS 113 is an internal-ratings framework rather than a universal checklist for every development lender, but it shows why bank credit looks beyond profit, LTC and presales. Non-bank and private lenders make the same question a matter of their own credit policy.
| Credit question | What the lender is trying to establish | What can strengthen the file |
|---|---|---|
| Developer or sponsor track record | Whether the team has delivered projects of comparable type, scale and complexity | A smaller first project, experienced development management, a stronger joint-venture partner or clearly evidenced comparable experience |
| Sponsor financial capacity and liquidity | Whether there is real capacity outside the facility to meet conditions, overruns and cost-to-complete shortfalls | Verified cash and uncommitted liquidity, not the same equity already required to settle and start construction |
| Borrowing entity or project SPV | Who owns the site, who incurs the project obligations and what support sits behind a project-specific entity | A clean ownership and security structure, transparent controllers, and guarantees or support acceptable to the lender |
| Builder and contract | Whether the builder can deliver this project at the contracted cost and within the programme | Relevant completed jobs, financial capacity, manageable workload, appropriate licences and a contract the QS can test |
A first-time developer is therefore not automatically unfinanceable, and there is no published APS 112 or RG 45 rule banning first-time sponsors. The practical issue is how much execution risk the lender thinks remains after it looks at the team, the equity, the builder and the evidence. Where the developer is thin on experience, the lender may respond with a smaller project appetite, more conditions, more equity, stronger presales or a requirement for experienced support rather than a simple yes or no.
Builder risk is deep enough to deserve its own assessment. Our development-finance builder due-diligence note covers the checks that sit behind this part of credit.
What is the difference between as is, as if complete and gross realisation value?
As is value is what the site is worth today, as if complete value is what the finished project is worth, and gross realisation value is a market shorthand that no valuation standard defines. Treating the three as one number is the most expensive vocabulary error in a feasibility, and the correction moves real money.
ASIC puts the first distinction plainly: an as is valuation is an estimate of the market value of a property in its current state, without any further improvements, whereas an as if complete valuation is an estimate of the market value of a property assuming certain specified improvements are made. The professional standard governing mortgage security valuations goes further, requiring that if the valuation assessment is conditional on anything, either physical or legal, occurring, the valuer must assess the market value on an as if complete basis, with an existing market value provided alongside it.
Here is the finding worth carrying away. That valuation standard never uses the term gross realisation value at all. The industry's most-used number has no home in the standard that governs the valuations lenders actually rely on. GRV is market vocabulary. The standard's term is market value on an as if complete basis, and the two are not interchangeable, because GRV is typically quoted gross of selling costs and often gross of GST while a valuation is not.
| Term | What it measures | Where the term comes from | What a lender does with it |
|---|---|---|---|
| As is market value | Market value of the site in its current state, no further improvements | Valuation standards, and used by ASIC in this sense | Sets security value before construction and anchors a land only facility |
| As if complete market value | Market value assuming specified improvements are completed | Valuation standards, required where the assessment is conditional | The denominator for a retail mortgage scheme under Benchmark 6 |
| Gross realisation value | Expected total sale proceeds of the completed project, usually gross of selling costs and often gross of GST | Market convention. Absent from the mortgage security valuation standard | Used as a sense check, but not the basis of a formal valuation |
| Net realisation value | Sale proceeds after selling costs, agents' fees and GST | Market convention, and the number your profit is actually made from | Read as the realistic repayment source for the facility |
| Total development cost | All costs of delivering the project as the developer counts them | Market convention, defined by whoever built the model | Rebuilt into qualifying development costs on the lender's own definitions |
| Residual land value | What the site can support once costs, finance and required return are deducted from revenue | Market convention, a feasibility output rather than a lending term | Read as a sanity check on the land price, not as a lending ratio |
| Cost to complete | The spend still required to finish the works from wherever the project has reached | Market convention, verified by the quantity surveyor at each stage | Re-tested at every drawdown, and the number that must always stay funded |
The valuation standard referred to above is the Australian Property Institute's guidance paper on valuations for mortgage and loan security purposes, ANZVGP 112, section 6.1, effective 1 January 2025. It governs how a valuer prepares the valuation your lender relies on, and it is the reason the basis of valuation is specified in the instruction rather than chosen after the fact.
The point of the table is the last column. Each term has a different owner, and only two of them are the basis of anything a regulator wrote down. For the approval numbers themselves see our note on development finance approval numbers and the glossary entry on gross realisation value.
Why is your total development cost not the lender's cost base?
Because qualifying development costs is a defined term in each lender's own policy and total development cost is not defined by anybody, so the lender rebuilds your cost base rather than accepting it. On a bank deal, every dollar the rebuild removes costs you roughly seventy five cents of borrowing capacity.
This is the single largest source of surprise on a first development, and it happens silently. Nobody rings to say your cost base has been cut. A number simply comes back lower than the one you modelled, and the difference is usually sitting in four or five line items you assumed were funded.
| Line in your model | Common treatment on rebuild | Why |
|---|---|---|
| Developer or project management fee paid to yourself | Commonly removed in full | An internal charge is not a cost incurred to a third party, and funding it lends you your own profit early |
| Land bought above valuation | Counted at the lower of price and valuation | The excess is treated as a purchase decision, not a development cost |
| Contingency set by you | Replaced with the quantity surveyor's figure, usually higher | The quantity surveyor is pricing risk the builder has priced out |
| Selling and marketing costs | Usually moved to a deduction from revenue rather than a funded cost | They are incurred against sales, not against construction |
| Consultant fees already paid before settlement | Often recognised in cost but not funded | Cost already sunk becomes part of your equity contribution, not part of the drawdown |
| Escalation or provisional sums with no scope behind them | Removed or held back until priced | An unpriced allowance cannot be verified at a drawdown |
| GST on costs where you will claim input tax credits | Commonly excluded from the cost base | A recoverable amount is a cashflow timing item rather than a net cost |
The treatments above are the patterns we see most often rather than a published rule, and every lender's policy words them differently. Confirm the definition with the lender rather than assuming it, because the same project modelled against two definitions produces two different maximum facilities.
What is a qualifying development cost?
It is whatever the lender's own policy says it is. APS 112 requires an ADI to have a policy that defines qualifying presales and qualifying development costs for the purposes of the ADC test, and APRA does not define either term itself. The consequence is that the denominator in the 75 per cent test is set by the lender, not by the regulator and not by you, which is why the same feasibility produces different ceilings at different banks.
Does the lender count your land at cost or at valuation?
Generally at the lower of the two. If you bought well and the site has since valued above your purchase price, most lenders will still count the purchase price in the cost base, so the uplift shows up as equity in the security position rather than as extra borrowing capacity.
If you paid above valuation, the excess usually comes out of the cost base and lands on your equity contribution. The exception is a site held for a long period, where a lender may accept a current valuation, and that is a policy question worth asking before you model it.
Is your loan measured against cost, value or GRV?
In the two published frameworks covered on this page, the reference bases are cost and value; gross realisation value is market vocabulary rather than a denominator set by APS 112 or RG 45. That is why the same project can produce several different leverage percentages depending on the lender and the denominator being quoted.
Three ratios circulate and they are routinely used as if they were interchangeable. Loan to cost is debt over a defined cost base. Loan to value is debt over a valuation, and the valuation basis matters. Loan to GRV is debt over expected gross sale proceeds. Because GRV is often the largest base, loan to GRV will often look like the smallest percentage, but that is not a rule and the three ratios answer different questions.
| Ratio | What it divides by | Does any regulator use it | Where you will hear it |
|---|---|---|---|
| Loan to cost ratio | Total development cost, or the lender's qualifying version of it | ✓ Yes, APS 112 uses qualifying development costs | Bank term sheets and credit papers |
| Loan to value, as if complete | A valuer's assessment of the completed project | ✓ Yes, RG 45 Benchmark 6 uses it | Mortgage fund and non-bank term sheets |
| Loan to value, as is | The site in its current state | Indirectly, as security value | Land only and pre-construction facilities |
| Loan to GRV | Expected gross sale proceeds, often before selling costs and GST | No. It appears in no Australian instrument | Broker and lender marketing, and most online guides |
| Loan to net realisation | Sale proceeds after selling costs and GST | No, but it is the honest version | Careful credit papers and experienced developers |
Market convention puts senior debt in the region of two thirds to three quarters of cost, and somewhat lower against GRV, but these are indicative market ranges that vary by lender, by project and by the day, they are not published limits, and no regulator sets them. Ask for the ratio and the denominator together, because a facility quoted at seventy per cent tells you nothing until you know seventy per cent of what.
The practical trap is quoting your project on one ratio and being assessed on another. A developer who has been told the market lends to seventy per cent has usually heard it against GRV, and then meets a bank measuring seventy five per cent against a cost base that is smaller than their own. Both numbers are true. They are answers to different questions, and only one of them is the question your lender is asking.
How does a lender calculate the maximum debt a development can support?
First identify the lender type, then apply every debt ceiling that actually applies to that lender. That can include prudential capital treatment or disclosure benchmarks, the lender's own LTC or LVR policy, the valuation, qualifying presales, peak debt and cost-to-complete. The lowest applicable ceiling, not the most favourable ratio in your feasibility, usually sets the facility size.
For illustration, the two published reference tests on this page can be run side by side: qualifying development costs multiplied by 0.75 shows the boundary relevant to the APS 112 qualifying residential ADC risk weight, but actual total debt must sit below that boundary; an as if complete valuation multiplied by 0.70 shows the RG 45 development benchmark for a registered retail mortgage scheme. A real lender may also impose tighter internal limits, so neither calculation is a promise of what that lender will advance.
| Test | Bank, on cost | Retail mortgage scheme, on value |
|---|---|---|
| Your total development cost | $10.0 million | $10.0 million |
| The base the ratio applies to | Qualifying development costs, $9.6 million | As if complete valuation, $13.0 million |
| The published ratio | Under 75 per cent | Not more than 70 per cent |
| Indicative debt ceiling | Below $7.20 million | Up to $9.10 million under the benchmark |
| Equity you must find | More than $2.80 million before other unfunded items | At least about $0.90 million before other unfunded items |
| Presale cover required | At least equal to actual total debt when the >$5 million condition applies; e.g. $7.19 million debt requires at least $7.19 million qualifying presales | Not addressed in the benchmark |
Every figure in that table is illustrative and rounded to demonstrate the mechanism. They are not a quote, an offer, or an indication of what any lender will advance on your project, and the equity line ignores capitalised interest, which is dealt with further down. What the table is for is the shape of the answer: the same project and the same evidence can produce materially different reference capacity because the applicable denominator and lender constraints are different.
Run this calculation before your first lender conversation and you change the nature of that conversation. You stop asking whether the deal works and start asking which column the lender sits in, which is the only question whose answer you cannot look up.
What is soft equity, and does a lender count it?
Soft equity is contribution that is not cash you have physically spent, and lenders treat it far more cautiously than developers do. The common examples are uplift in the land value since purchase, a developer fee you have booked to yourself, work in kind by a related builder, and consultant costs invoiced but not paid. Each of them is real value and none of them is money at risk, which is the thing the lender is testing for.
Expect uplift and internal fees to be discounted or removed, and expect to be asked to evidence cash actually spent.
Can your land equity count as your contribution?
Usually yes, and it is the most common way development equity is contributed. If the site is worth more than you owe on it, the difference generally counts toward your equity contribution rather than having to be found in cash.
Two limits apply. The land is normally counted at the lower of purchase price and valuation, so recent uplift may not help you, and most lenders still want to see cash actually spent on consultants, approvals and the early costs, because a contribution made entirely of paper equity leaves nobody with cash at risk. Where the gap is still too big, the routes are set out in what happens when the number comes back short.
What is peak debt, and why does it size your facility?
Peak debt is the highest balance the facility ever reaches across the life of the project, and it is the number the lender sizes and prices against, not the total you eventually spend. A project can spend $10 million and never have more than $7 million drawn at once, because sales settle and repay debt while construction is still running.
This matters because the two tests above both bite on total debt, which means peak debt is what has to sit under the ceiling. Two projects with identical total development cost can carry very different peak debt depending on when the equity goes in, how fast the build draws, and whether any stages settle before practical completion. Getting the profile right is a live lever on whether a deal fits inside a bank's ratio.
Three things move it. Equity contributed first rather than pro rata lowers peak debt, which is why many lenders require your equity to be fully spent before the first drawdown. Staging a project so that stage one settles and repays before stage two draws lowers it materially. And a longer programme raises it, because capitalised interest keeps accruing on the drawn balance.
The term to watch alongside it is the loan to cost ratio, which is peak debt over cost, and it is the ratio most lenders will actually quote you even when the underlying capital rule is worded differently. How the balance builds through the facility is covered in staged drawdowns.
Does capitalised interest sit inside the feasibility?
Yes, and it sits inside the cost base that determines the size of the debt, which makes the calculation circular. The cost of the debt is an input to the number that sets the debt, and the circularity is the part that trips developers up.
ASIC describes development lending as effectively negative cash flow lending, where there is no or insufficient income to pay interest and interest is either capitalised or paid from the drawdown of capital. That interest therefore sits inside the cost base, which sits inside the denominator, which sets the facility, which generates the interest.
The practical effect: every extra month of programme adds capitalised interest, which adds to total development cost, which raises the debt required, which raises the interest. On a long programme the loop is not trivial, and it is the reason a three month delay costs more than three months of interest on the balance you have today. The mechanics of how interest capitalises through a development facility are in our note on capitalised interest on a development loan and the capitalised interest glossary entry.
| Cost line | Inside total development cost | How a lender usually treats it | Where it bites |
|---|---|---|---|
| Land acquisition | ✓ Yes | Counted at the lower of purchase price and valuation | A site bought above valuation reduces recognised equity |
| Construction contract sum | ✓ Yes | Verified by the quantity surveyor against the signed contract | An unsigned contract stalls the whole assessment |
| Contingency | ✓ Yes | Set by the quantity surveyor, often above the developer's figure | The line most often increased on review |
| Professional and consultant fees | ✓ Yes | Counted where evidenced, excluded where they are internal charges | Developer management fees are commonly stripped out |
| Transfer duty and any foreign purchaser surcharge | ✓ Yes | Counted in cost, but usually payable from equity at land settlement | Lands before the facility draws, when your cash is lowest |
| Statutory contributions and authority costs | ✓ Yes | Counted against the approval conditions | Underestimated where the approval is not yet final |
| Capitalised interest and line fees | ✓ Yes | Funded within the facility and sized off the drawdown profile | Grows with programme, and feeds back into the required facility |
| Establishment, valuation and quantity surveyor fees | Partly | Some funded, some payable from equity up front | Front loaded, and often forgotten in the equity calculation |
| Selling and marketing costs | Partly | Usually treated as a deduction from revenue rather than a funded cost | Overstates net revenue if left inside the gross realisation figure |
One line sits outside this table and routes elsewhere. The building contract itself, and how the applicable construction rules in your state affect the cost line, is covered in our note on construction rules by state.
What can you actually afford to pay for the site?
You can afford whatever is left once realistic net revenue is reduced by development costs, finance costs, selling costs and the return you require for taking the development risk. That residual land value can be below the vendor's asking price, especially where the asking price assumes a more aggressive yield, sale price, programme or margin than your own feasibility can support.
Residual land value is a feasibility output, not a lending term, and no lender will lend against it. What it does is tell you whether the price you are about to pay leaves a project behind it. Work it backwards: net realisation after selling costs and GST, less construction, less professional and statutory costs, less contingency, less finance costs, less the margin you need to justify the risk, and what remains is the most the land can carry.
The insight most first time developers miss is that there are two residual land values, not one. The first is calculated on your target profit margin and answers what you would like to pay. The second is calculated on the debt the site can actually carry plus the equity you actually have, and it answers what you are able to pay. If your equity is finite, the second number is the binding one, and it is the one that should set your offer.
That is why the sequence matters. A site bought at the margin-based residual, funded on the assumption that a lender will advance to a ratio or valuation basis that does not actually apply to that lender, produces a deal that only works if somebody else funds the gap. Running the applicable debt-ceiling calculations before you sign reprices the offer honestly. Where a site is under contract before any of this is known, the pre-approval stage is covered in our note on pre-construction development finance.
One qualification on the land price. What the site can carry is a function of what you can build on it, so a residual land value calculated before you know the yield the planning scheme will allow is a guess. If the approval is not settled, the honest version of this calculation carries a range and a condition, not a single figure.
Whether a lapsed or amended approval changes that is covered in our guide to refinancing a site where the DA has lapsed or been amended, and the term itself in the development approval entry.
What do stamp duty and the foreign purchaser surcharge add to the site?
Transfer duty is payable on the site at settlement, from your own funds, before any facility exists, and where the buying entity is a foreign person a surcharge of seven to nine per cent of the land price can sit on top of it. On a $2.4 million site that surcharge alone can exceed $200,000, which is larger than most cost overruns.
This is the cost family most feasibility models handle worst. Duty sits inside total development cost but is generally not funded, so it comes out of the equity you thought you were contributing to construction. And the surcharge catches entities that do not think of themselves as foreign at all, which is dealt with immediately below.
The rates and the relief change with every state budget, so the table records the durable position of each jurisdiction rather than a rate schedule, and every row is anchored to the revenue office that sets it. Confirm the current figure with that office or your solicitor before you rely on it.
| Jurisdiction | Surcharge on residential land | Developer relief available |
|---|---|---|
| New South Wales | Surcharge purchaser duty, 9 per cent since 1 January 2025 | ✓ Exemption or refund for Australian-based developers who are foreign persons, on application |
| Victoria | Foreign purchaser additional duty, 8 per cent | Exemptions and concessions apply in defined circumstances |
| Queensland | Additional foreign acquirer duty, 8 per cent on residential land only | Ex gratia relief has been available for significant development, under public ruling |
| Western Australia | Foreign transfer duty, 7 per cent on residential land only | ✓ Reassessment and refund where the development produces ten or more dwellings |
| South Australia | Foreign ownership surcharge on residential land | Ex gratia relief has been available for significant developments |
| Commercial and industrial land | Generally outside the residential surcharge regimes | Not applicable, but foreign investment approval still is |
Sources for the rows above, each fetched in the month shown: Revenue NSW on surcharge purchaser duty and its exemption for Australian-based developers, the Victorian State Revenue Office on foreign purchaser additional duty, Queensland Revenue Office on additional foreign acquirer duty, and the Western Australian foreign transfer duty developer exemptions, as at August 2026.
Is your development company a foreign person?
It can be, on a much lower threshold than most developers expect, because the test looks through to shareholders and unitholders rather than at where the company is registered. A corporation is generally treated as foreign where foreign persons hold a substantial interest or an aggregate substantial interest in it, so an Australian company with one non-resident shareholder or one offshore investor in the unit trust can be caught.
Two consequences follow. The surcharge attaches to the entity that signs, so the decision is made when you set up the buying structure rather than at settlement, and it is generally not fixable afterwards. And a discretionary trust with a wide class of potential beneficiaries can be treated as foreign unless the deed excludes foreign beneficiaries, which is a drafting question for your solicitor before the contract, not after.
Do you need foreign investment approval to buy a development site?
You do if the acquiring entity is a foreign person, and it is a separate approval from anything to do with duty. Foreign investment approval is administered federally, carries non-refundable application fees that scale with the purchase price, and has to be obtained before the acquisition rather than afterwards.
It also interacts with the state relief above, because at least one state requires evidence of that approval as part of the developer exemption application. The starting point is the Australian Government's foreign investment guidance, and this is territory for your solicitor and accountant rather than your broker.
Where does duty sit in the feasibility?
Inside total development cost, and outside the funded facility on most deals, which is the combination that catches people. Because it is payable at land settlement it lands at the point where your cash reserves are lowest and the facility has not yet drawn, so it belongs in the equity line of your model rather than the cost line you expect the lender to fund. Model it gross, alongside the establishment, valuation and quantity surveyor fees that sit in the same position.
How does GST change the revenue line in a feasibility?
It reduces it, often by close to a tenth, because new residential premises are generally a taxable supply and the GST comes out of the sale price rather than being added to it. A feasibility that carries gross realisation value as its revenue line, with no GST treatment underneath, is overstating the money available to repay the facility.
Two features of the current rules matter to the model. On new residential premises and potential residential land the purchaser generally withholds an amount at settlement and pays it to the ATO directly, so the money never reaches your account. And where the margin scheme is available it changes the amount of GST payable, but it requires a written agreement between the parties made on or before settlement, which means the clause has to be in the contracts you are signing during the presale campaign rather than negotiated later.
This is a tax question rather than a finance one, and the interaction between the margin scheme, your input tax credits and your entity structure is properly an accountant's call on your specific facts. The ATO's guidance on GST and the margin scheme is the starting point, and you should have your accountant confirm the treatment before the feasibility is finalised, because getting it wrong moves the revenue line by more than most cost overruns move the cost line.
For the lender's purposes the consequence is simple. It will read your revenue net, and if your model reads it gross, the two of you are looking at different projects.
Who is allowed to produce the numbers in your feasibility?
You can prepare the feasibility, but a lender will not normally treat your own unsupported estimates as independent evidence for the security value or the construction cost it relies on. The independence obligation is clearest on the lender's valuation process; in practice, development lenders also commonly require an independent quantity-surveyor review of cost and progress.
The binding instrument is APRA's prudential standard APS 220 Credit Risk Management, which requires an ADI to ensure valuations are appraised independently of its credit origination, credit assessment and approval process. APRA's practice guide APG 220 adds that prudent practice is to use external valuations to determine security value, and that where an internal valuation is used it is prudent for it to be conducted by personnel independent of origination, assessment and approval.
The prudential rule is about independence in the lender's valuation process, not a blanket rule that every borrower-supplied document is invalid. In practice, development lenders commonly instruct or control the valuer and quantity surveyor, even where you pay the cost, so the reports are addressed or assignable in a form the lender can rely on. Some lenders can accept or re-address an existing report; others will insist on a fresh instruction.
Independent, and the lender can rely on it
- Quantity surveyor appointed by the lender, reporting to the lender
- Valuer instructed by the lender, with the basis of valuation specified in the instruction
- Cost plan traced to a signed building contract, not to an estimate
- Revenue supported by executed contracts and comparable evidence
- Contingency set by the quantity surveyor rather than by the developer
- Programme prepared by the builder and tested against the facility term
Conflicted, and it will be re-ordered
- Cost estimate prepared by the builder who will be paid from it
- Valuation commissioned by the developer for a different purpose
- Revenue based on agent appraisals rather than valuation evidence
- Feasibility spreadsheet with no source document behind key lines
- Valuation addressed to another party and not assignable to the lender
- Same adviser preparing the model and advocating the credit case
The practical read: assume every number on the right hand side will be replaced, and budget the time and cost of replacing it into your programme rather than discovering it at credit.
Can your builder's fixed price contract stand in for a cost plan?
It supports the cost plan but it does not replace it. A signed fixed price building contract is the evidence a quantity surveyor works from, and without it the assessment usually stalls, but the lender still wants an independent view of whether the contract sum is enough to finish the works. Where the builder's number and the quantity surveyor's number disagree, the lender generally works to the quantity surveyor's number and asks you to fund the difference from equity rather than splitting it.
Who pays for the quantity surveyor and the valuer?
The developer generally pays for the quantity surveyor and valuation even when the lender controls the instruction. Treat those as front-loaded due-diligence costs and confirm with the lender whether they are funded, reimbursable or payable from equity. What the report covers is set out in our note on the development finance quantity surveyor report and the quantity surveyor glossary entry.
How long does an as if complete valuation take?
An as if complete valuation is easiest to finalise once the approved or sufficiently settled scheme, drawings and specifications make clear what is being valued. Some lenders can instruct earlier on a conditional basis, but changes to the approval or design can trigger rework. Budget in weeks rather than days and start the instruction as soon as the lender confirms the scope it will accept.
Can you reuse a valuation or QS report if you change lenders?
Sometimes, but not automatically. A new lender has to be able to rely on the report under the consultant's terms and under its own panel and credit policy. That can mean accepting the existing report, having it re-addressed, obtaining a reliance letter or commissioning a fresh report if the new lender, consultant, scope or report age does not fit.
The practical question to ask before you move the deal is: can the new lender rely on my existing valuation and QS report, and if not, exactly what has to be re-instructed? A cheaper headline facility can stop being cheaper if a second valuation, a second initial QS report and several more weeks of due diligence have to be bought again. The Australian Property Institute's mortgage-valuation guidance is built around defined users, purposes and reliance, so report portability should never be assumed merely because the underlying property has not changed.
What counts as a qualifying presale, and why does the answer change by lender?
A presale counts when your lender's policy says it counts, because APS 112 requires the ADI to define qualifying presales in its own policy and APRA does not define the term itself. That is why two lenders can read the same contract schedule and count very different totals without either being unreasonable.
There is also a widely repeated belief that APRA requires banks to hold 100 per cent presale cover, and APRA has publicly said otherwise. In a letter dated 13 February 2025, APRA clarified that the presales reference in its March 2017 commercial property lending letter does not represent a minimum requirement or expectation of APRA.
The 2017 letter was reporting an observation about market practice at the time, that ADIs were then generally requiring qualifying presales equivalent to at least 100 per cent of committed debt, and the market turned that observation into a rule it never was.
Keep the two apart, because they are different things wearing the same number. The APS 112 condition is a live capital treatment test on exposures over $5 million, and it is real. The 2017 letter was a supervisory observation that APRA has since expressly disowned as a requirement. Source: APRA, clarification of its March 2017 letter on commercial property lending, 13 February 2025.
APRA does, however, publish what it considers good practice for that policy. In its practice guide APG 112, APRA states that good practice is for the policy to require pre-sale contracts to be legally binding, conducted at arm's length, to include a required non-refundable minimum deposit, and to feature appropriate sunset dates consistent with expected completion dates. Good practice is also to include within the policy a maximum proportion of presales to a single entity or individual, or to foreign purchasers.
Read as a checklist, that is close to a national standard even though it binds nobody. Most bank policies land in the same place, and most non-bank policies borrow from it, so the tests below are a reasonable model of what your contract schedule will be measured against.
| Feature of the contract | Usually counts in full | Usually discounted or excluded |
|---|---|---|
| Who the purchaser is | Unrelated third party at arm's length | Developer, its directors, or their associates |
| Deposit | Non-refundable, paid, and held in a trust account | Small, unpaid, deferred, or a deposit bond with no substance behind it |
| Conditionality | Unconditional, with any finance clause satisfied | Subject to finance with no evidence, or subject to sale of another property |
| Cooling off | Expired or validly waived | Still running, or an extended contractual cooling off period |
| Sunset date | Consistent with the expected completion date | Earlier than realistic completion, so the purchaser can walk |
| Concentration | Spread across many unrelated purchasers | A high proportion to one entity, one individual, or to foreign purchasers |
| Price | In line with the valuer's assessment of each lot | Above valuation, with the excess commonly not counted |
Two structural points follow. Because the APS 112 condition is expressed against total debt rather than against total revenue, a facility that grows during design development pulls the presale requirement up with it, which is a trap on projects where the cost plan moves after the presale campaign has closed. And because the condition attaches to exposures over $5 million to a single development, smaller projects sit in a different place entirely.
Contract terms are a legal question. Whether a particular sunset clause, deposit arrangement or finance condition does what you think it does is a matter for your solicitor rather than your broker, and it is worth having the presale contract drafted with the lender's qualifying tests in mind rather than fixing it afterwards. The general term is covered in the presales glossary entry.
Does a presale to a related party count?
Usually not, or not at full value. APRA's own good practice guidance points to contracts being conducted at arm's length, and most lender policies exclude or heavily discount contracts to the developer, its directors and their associates. The reasoning is that a related party contract does not evidence market demand, which is the entire point of the presale test. It also does not fix the problem it appears to fix, because the lender is testing whether an unrelated buyer will pay that price.
Why does the lender care about the sunset clause?
Because a sunset date that arrives before the project realistically completes hands the purchaser a right to walk away at exactly the moment the lender needs the contract to settle. APRA's guidance points to sunset dates consistent with expected completion dates for that reason. A schedule of contracts with sunset dates set optimistically against the programme can be counted at a discount or not counted at all, and it is the sort of defect that only surfaces when someone reads the contracts rather than the summary schedule.
What order should you do things in before you go to credit?
You can speak to lenders before every document is final, and that is often useful for testing appetite. Formal construction approval usually hardens in stages: the planning position and drawings become sufficiently settled, the building contract or tender fixes the cost base, the valuation and quantity-surveyor reports test value and cost, and credit then closes the remaining conditions. The exact order varies by lender and project, so the goal is not a rigid sequence; it is avoiding a report that has to be paid for twice because the underlying scheme changed.
- Test the land price against the debt the site can carry. Apply the debt constraints that actually apply to the lender types you are considering on an assumed yield before you sign anything, and treat the answer as a range while the approval is unsettled.
- Settle the approval and its conditions. Statutory contributions and authority costs are commonly underestimated where the approval is not final, and they sit inside the cost base.
- Get the drawings to a level a builder can price and a valuer can specify. A lender-reliance valuation and final QS review need a sufficiently defined scheme; preliminary work can start earlier, but material design changes can trigger rework.
- Settle the building contract or tender to the level credit requires. The lender and QS need an evidenced construction scope and price, but the exact point at which a signed contract becomes mandatory varies by lender and deal stage.
- Confirm the lender's instruction and reliance requirements before ordering reports. Some existing reports can be accepted or re-addressed; others need to be freshly instructed. Ask first so you do not pay twice.
- Rebuild your own feasibility on the reports. The cost line will usually have moved up and the contingency will usually have been reset. Better you find the gap than the assessor does.
- Run your own sensitivities and show the answers. A feasibility that already contains the stressed case reads as a model built to be funded rather than built to look good.
Development finance feels slow because several independent reports and legal documents depend on information produced earlier in the project. Build those dependencies into the programme and ask the proposed lender which items it can start in parallel. Indicative terms can arrive well before final credit; settlement cannot.
What if the land settles before the development facility is ready?
The settlement date does not make the construction facility available. If the planning position, design, valuation, cost plan or credit conditions are still incomplete, the developer needs another way to complete the land settlement: enough equity, a separate site-acquisition or pre-construction facility, or a negotiated settlement extension that the vendor accepts.
That timing problem should be solved before exchange or before any finance condition expires. If the purchaser cannot settle, the consequences depend on the contract and the state and can include default interest, termination, loss of deposit or damages, so the default provisions are a solicitor question rather than a finance assumption. Our pre-construction development finance note covers the funding side of that gap.
How do lenders stress test a development feasibility?
A lender stress tests a development feasibility by asking what happens when revenue, cost, timing or sell-down moves against the base case, then checking whether debt, equity and the exit still work. Some lenders size or condition the facility directly off the stressed result; others use the stress as a credit hurdle. Either way, the base-case profit is not the only model credit reads.
It is worth being clear about what is and is not published here. No Australian regulatory instrument sets the size of the sensitivity a lender must apply. Figures such as a ten per cent cost movement and a ten per cent revenue movement circulate widely and are repeated by AI answers, but they trace to lender and broker commentary rather than to APRA or ASIC. Individual lenders set their own sensitivities in credit policy and they vary.
What is consistent is the mechanism, and the mechanism has a feature that surprises people. When costs rise, the denominator rises too, so it is tempting to assume the ratio holds. It does not, because your equity is usually fixed while the debt absorbs the whole increase.
| Line | Base case | After the quantity surveyor adds $600,000 |
|---|---|---|
| Qualifying development costs | $9.6 million | $10.2 million |
| 75 per cent boundary; qualifying debt must be below it | $7.20 million boundary | $7.65 million boundary |
| Your equity contribution | $2.4 million | $2.4 million, unchanged |
| Debt actually required | $7.19 million | $7.79 million |
| Position against the threshold | Just inside the less-than-75 per cent test | About $140,000 above the 75 per cent boundary |
| Presale cover now required | About $7.19 million | About $7.79 million |
Those figures are illustrative and rounded to show the mechanism only. They are not a quote, an offer, or an indication of any lender's assessment of your project. What the table demonstrates is the trap: a roughly six per cent cost movement pushed the debt requirement above the 75 per cent boundary and lifted the presale requirement at the same time. From the underwriter's seat that is one common way a workable deal becomes a harder one, and it is why contingency and cost-to-complete receive so much attention.
The same logic applies on the revenue side, where a slower sell down extends the term, which capitalises more interest, which lifts cost, which lifts required debt. How the sell down side is tested is covered in our note on the sell down assumption.
What is cost to complete, and who tests it?
Cost to complete is the spend still required to finish the works from wherever the project has reached. A development quantity surveyor will typically re-test it at construction drawdowns or progress claims, because the lender needs to know that the undrawn facility plus the developer's remaining contribution can still complete the project.
If cost to complete ever exceeds the undrawn facility plus your remaining equity, the project is out of funds on paper even if nothing has gone wrong yet, and that is the point at which a lender asks for more equity rather than more time.
Is there a minimum profit margin lenders require in Australia?
No published Australian rule sets a minimum profit on cost, and neither the prudential standard that binds banks nor the disclosure benchmark that binds retail mortgage schemes contains a margin threshold of any kind. Individual lenders may impose their own margin hurdles through credit policy, but those hurdles are lender-specific rather than regulatory thresholds.
This deserves stating plainly because it is the internet's dominant answer to this question and it is not supported. Figures in the range of fifteen to twenty five per cent circulate widely online, get repeated by AI answers, and are presented as an industry requirement. They trace to lender, broker and feasibility software marketing rather than to any regulator.
| The claim | Where it actually comes from | What the instrument sets instead |
|---|---|---|
| Lenders require 20 per cent profit on cost | Lender, broker and software marketing. No regulator states it | APS 112 sets a cost ratio and a presale condition, with no margin |
| APRA requires banks to hold 100 per cent presales | A 2017 APRA letter reporting market practice, read as a rule | APRA clarified in 2025 that it is not a minimum requirement or expectation |
| Every ratio is quoted against GRV | Market convention. GRV appears in no Australian instrument | Cost for a bank, as if complete value for a retail scheme |
| The industry standard is 70 to 80 per cent loan to cost | RG 45's two valuation benchmarks, misread as one cost range | 70 per cent on as if complete value for development, 80 per cent on market value otherwise |
| Lenders stress test at 10 per cent up and down | Market commentary. No published instrument sets a sensitivity | Nothing published. Each lender sets its own in credit policy |
| You need a minimum internal rate of return | Feasibility software defaults and equity investor conventions | Nothing. The tests are ratio and evidence based, not return based |
None of this means margin is irrelevant. A thin margin makes a deal harder, because it removes the buffer that absorbs the cost movement in the section above, and because a lender assessing whether you can fund cost to complete is implicitly assessing whether there is anything left over. But a figure presented as the industry minimum is policy or marketing, not rule, and knowing the difference changes how you argue your case.
What actually gets a feasibility declined or repriced?
In practice, the problems we see most often are a material number that cannot be supported by independent evidence, a cost or valuation rebuild that reduces capacity, weak presales or exit evidence, and a funding structure that no longer covers cost to complete. A thin profit margin can matter, but it is usually one part of the credit picture rather than a published regulatory test.
It is also worth being precise about what a bad outcome looks like, because outright decline is the least common of the five. A feasibility that does not clear usually comes back as a smaller facility, a higher price, a demand for more presales, a demand for more equity, or a term the programme cannot meet. Each of those is a negotiation rather than an ending, and each has a different fix.
What a bankable feasibility looks like
- Every material line traceable to a signed document or an independent report
- Contingency set by the quantity surveyor and left intact
- Debt tested against the right denominator for that lender type
- Presale schedule tested against the lender's qualifying definition, not the total
- Programme and facility term reconciled, with capitalised interest included
- Sensitivities already run, with the answers shown rather than hidden
What gets it repriced or declined
- Contingency trimmed to make the base case work
- Revenue built on agent appraisals with no valuation support
- Builder's estimate standing in for a quantity surveyor cost plan
- Presales counted gross, including related party contracts
- Facility term shorter than the realistic sell down period
- Developer management fees embedded in cost with no evidence
From our broking, indicative
From the underwriter's seat, the order in which a feasibility gets pulled apart is fairly predictable, and it is not the order most developers expect.
- The contingency line is queried first, before revenue and before profit. It is the fastest read on whether the model was built to be funded or built to look good.
- The line that moves most often on review is construction cost, and the movement is almost always upward, because the quantity surveyor is pricing risk the builder has priced out.
- Where the quantity surveyor's number and the builder's number disagree, the lender works to the quantity surveyor's number and asks you to fund the gap from equity. It does not split the difference.
- The difference between an optimistic feasibility and an unbankable one is usually traceability rather than optimism. An ambitious revenue line with valuation support behind it survives assessment. A modest one with nothing behind it does not.
- Deals rarely die at the ratio. They die in the weeks spent replacing numbers that were never independent in the first place, while the programme and the approval conditions keep running.
Indicative only, drawn from deals we have placed and from what we see on assessment. Deliberately qualitative, with no figures attached. This is not a quote, an offer, an approval likelihood or an indication of terms. Actual outcomes depend on lender policy, the quality of your evidence and your circumstances at the time of application. Not financial advice.
Where the builder rather than the numbers is the problem, the assessment moves to a different question entirely, covered in our note on builder due diligence. And if you want the whole assessment sequence from the lender's side rather than the instrument's, how development finance works is the companion piece.
What happens when the number comes back short?
You are looking at an equity gap, and it gets closed in one of six ways. Which route fits depends on why the gap exists, how large it is and how much cost, control or margin you are willing to give away to close it.
This is the moment most feasibility guides stop, and it is the moment that actually matters. A shortfall is not a verdict on the project. It is a statement about the ratio your lender is governed by and the cost base it recognises, and both of those change if you change lender type.
| Route | When it fits | What it costs you |
|---|---|---|
| More of your own cash | Small gap, and you have liquidity outside the project | Nothing in margin, but it concentrates your own risk in one deal |
| Move to a lender governed by a different ratio | The project is strong but the cost denominator is binding | Higher pricing and fees, offset against a larger facility |
| A subordinated or mezzanine layer | Senior debt is at its ceiling and the margin can carry a second cost of funds | Expensive money, and the senior lender must consent to the structure |
| Vendor finance on the land | The vendor is willing to leave part of the purchase price outstanding and the senior lender accepts the subordinated structure | Negotiated vendor interest and terms, plus senior-lender consent and priority documentation; it does not cure an over-priced site or weak serviceability |
| Preferred equity, equity or joint-venture partner | Large gap, or where senior and mezzanine debt cannot carry the whole requirement | A negotiated return, a share of profit and sometimes governance or control rights |
| Stage the project | The site can be split and stage one can settle before stage two draws | A longer overall programme, a second set of costs, more capitalised interest |
| Renegotiate or walk from the land price | Pre-contract, or where a condition still lets you out | The deal, sometimes, which is cheaper than the alternative |
Three of those routes need particular care. Mezzanine and preferred-equity money only make sense when the project margin genuinely absorbs the extra capital cost, and any second-ranking debt needs to fit the senior lender's security and priority requirements. Vendor finance is not invisible equity: where it remains as debt behind the senior facility, the senior lender needs to know about it and may require written consent, subordination and a priority deed.
A joint venture, preferred-equity investment or vendor carry can also have legal, tax and control consequences that outlive the original funding gap, so the structure belongs with your solicitor and accountant before it belongs in a lender submission. The layers themselves are covered in the mezzanine finance, equity gap funding and vendor finance guides, and the capital tiers in our development-finance equity tiers note.
The cheapest fix is usually the least interesting one. Going back through the cost base rebuild and finding which lines were removed, then evidencing the ones that can be evidenced, recovers capacity at no cost in margin at all. Do that before you price mezzanine.
Why does feasibility software mislead you about what matters?
Feasibility software can mislead a borrower about the lender's priorities because developer-facing outputs usually lead with profit on cost and IRR, while a senior lender is often more focused on debt sizing, security value, peak debt, cost to complete, presales and the exit. The software is not wrong; it is answering a different decision question.
The consequence is a model that is genuinely good at its own job and structurally unhelpful at the credit conversation. Peak debt is often computed but not presented. Cost to complete at each stage is rarely shown at all. The cost base is the developer's cost base, not a qualifying one, so the ratio the model reports is not the ratio the bank will run. And contingency is usually an input the user sets, which means the single line an assessor checks first is the line the model invites you to optimise.
The fix is not to abandon the software. It is to produce a second page for the lender that answers the lender's questions: peak debt and when it occurs, the cost base with your own internal charges identified separately, the presale schedule against the qualifying tests rather than the total, cost to complete at each stage, and the stressed case alongside the base case. A model that arrives with that page attached is doing the assessor's first hour of work for them, and it changes the tone of the whole file.
Does a lender care about IRR or profit on cost?
A lender can care about IRR and profit on cost, but usually not in the same way an equity investor does. For senior debt, return metrics are more commonly read as evidence of headroom than as the sole calculation of how much the lender will advance.
Internal rate of return is timing-sensitive and a project can show a strong IRR while still having thin absolute headroom. Lender policy may include a minimum margin hurdle, but the actual facility is normally constrained by several tests at once, including leverage, value, cost, presales, peak debt and the exit.
No single feasibility template is universally accepted by Australian development lenders. The useful template is the one that exposes the evidence credit needs: peak debt, the lender-relevant cost base, cost to complete, qualifying presales, the stressed case and the exit, with each material assumption traceable to a source document.
How does the facility get repaid, and why does the exit belong in the feasibility?
It is repaid from sale proceeds as lots settle, or by refinancing whatever does not sell into a longer term facility, and the lender assesses that exit before it approves the drawdown. A feasibility with no exit stated is a feasibility with no repayment source stated.
The sell down assumption is where this gets tested. Your model assumes a rate of settlement, the lender assumes a slower one, and the gap between them is the difference between a facility term that works and one that expires with stock still on the ground. Every month of overrun capitalises more interest, which is the loop from the capitalised interest section running in the other direction.
Unsold stock at the end of the facility is not automatically a failure, but the refinance is not automatic either. Completed stock may be refinanced into a residual-stock or longer-term facility if the completed value, saleability or rental income, borrower position and lender appetite support it at the time. Planning that option before the development facility matures gives you more choices than assuming it will be available later. Our exit strategy entry covers the general term and our guide to an expiring development facility with unsold stock covers the refinance decision.
Practically, this means the facility term in your feasibility should reconcile to the programme plus a realistic sell down plus a buffer, and the interest line should be calculated over that period rather than over the construction period alone. A model that runs interest to practical completion and stops is understating cost, which understates required debt, which produces a ratio the assessor will not reproduce.
What is a release price when a development lot settles?
A release price is the amount of a lot or unit's settlement proceeds that the development lender requires before it releases its mortgage or other security over that lot. The facility agreement or release schedule sets the amount or formula, so a settlement can reduce senior debt without producing the same amount of free cash for the developer.
This matters to the feasibility because early settlements are sometimes assumed to fund later project costs or release profit. If the lender requires most or all of those proceeds to pay down debt, the cash does not become available simply because the accounting profit has been realised. Model the release schedule alongside the sell-down, capitalised interest and facility balance, and confirm the actual formula from the term sheet or facility documents rather than assuming a pro-rata share of debt.
What is a residual stock loan?
A residual stock loan is a facility secured against the completed but unsold lots, taken out to repay the development facility when the sell down has not finished by the time the term expires.
It is a distinct product with its own name, and the point of knowing that name early is that you can plan for it rather than negotiate it under pressure. Lenders generally assess it on the completed value of the remaining stock rather than on development cost, so the ratio and the pricing both change at that moment, and the stock has to be genuinely saleable rather than simply unsold.
What should you have ready before you talk to a lender?
Have the current feasibility, planning approval and conditions, drawings, building contract or tender, presale schedule with supporting contracts, and your own financial position ready. You can have an initial lender conversation without all six, but missing evidence usually turns the next step into another information round rather than a clean assessment.
The order matters less than the completeness and consistency. A file moves faster when each material number in the feasibility can be traced to a document, the lender knows what is still provisional, and you already know which lender framework or credit policy is likely to be relevant.
Your own position is the part developers most often leave out. A development facility usually carries a director's guarantee, so the lender is assessing you as well as the project, and any existing borrowings, including your own home loan, form part of that picture. How a guarantee behind a development facility reads on your own file is covered in our guide to what happens when a personal guarantee is called, and the general concept in the serviceability entry.
Is a development loan regulated credit?
It depends on who is borrowing and what the credit is for. The National Credit Code applies only where the debtor is a natural person or strata corporation and the purpose falls within the Code, including residential property investment. ASIC specifically says most development done through companies is outside the credit legislation, but a loan to a natural person to buy land and build residential dwellings will generally be regulated. See ASIC's development-loan guidance and its National Credit Code overview.
There are exceptions and thresholds. The regulations, for example, exclude certain residential-investment credit above $5 million where the investment is not in a single residence. A business-purpose declaration is only appropriate where the credit is genuinely wholly or predominantly for business purposes or investment other than residential property; it is not a shortcut for converting a Code-purpose loan into business credit. If the borrower is an individual or the purpose is mixed, get legal advice before relying on the declaration.
For a development borrower, the practical question is therefore not simply “is development finance regulated?” but “who is the debtor, what will more than half of the credit be used for, and does a specific exemption apply?” That classification should be settled before documents are signed.
The question that decides your feasibility is not a universal industry ratio but which constraints actually apply to the lender assessing it. An APRA-regulated bank is affected by APS 112 capital treatment, a registered retail mortgage scheme discloses against RG 45 benchmarks, and a wholesale or private lender applies its own credit policy. The sponsor, builder, valuation, QS, presales, peak debt, cost to complete and exit can then tighten the answer further.
The numbers repeated online as universal development-finance rules often mix regulatory thresholds, disclosure benchmarks and market convention. Neither APS 112 nor RG 45 sets a minimum development profit margin. Apply the debt constraints that actually belong to the lender you are considering, then build the feasibility so the cost base, evidence, cash flow and exit can survive that lender's assessment.
Key takeaway: identify the framework and credit policy that apply to your lender before relying on any LTC, LVR, GRV or presale number, because the denominator and binding constraint determine how much debt the project can actually support.What do developers ask next about development feasibility?
There is no published standard, only the capital threshold that shapes bank behaviour: under 75 per cent of qualifying development costs for the concessional risk weight. Non-bank and private lenders commonly write above that, on their own credit policy and at different pricing. What matters more than the headline ratio is which cost base it is measured against, because your total development cost and the lender's qualifying cost base are different numbers. The term itself is covered in the loan to cost ratio entry.
Enough to cover the difference between your cost base and the debt ceiling that applies to your lender, plus the front loaded fees the facility does not fund. On a bank deal measured against qualifying development costs, that difference is commonly a quarter of the cost base or more once stripped lines are added back. Land equity usually counts toward it, cash already spent on consultants often counts, and the balance is found in cash or in the routes set out in our note on equity tiers.
No. APS 112 is a prudential standard made by APRA and it binds authorised deposit-taking institutions only. A non-bank lender is not an ADI, so the seventy five per cent of qualifying development costs threshold and the presales condition attached to it do not apply to it at all. That is why a non-bank can often write a larger facility on the same project, and why the pricing differs. The general distinction is covered in the non-bank lender entry.
Usually because the two numbers are measuring different things. Your sale prices are a gross realisation figure, typically stated before selling costs and often before GST, while the valuation is a market value on an as if complete basis prepared under a professional standard. A valuer also tests each lot against comparable evidence rather than against your price list, so contracts above assessed value commonly have the excess disregarded. The distinction is set out in the gross realisation value entry.
You prepare the feasibility. What you cannot do is be the independent source for the numbers inside it. A lender will generally require the cost side to be verified by a quantity surveyor it appoints, and the value side by a valuer it instructs, because the prudential standard requires valuations to be appraised independently of credit origination, assessment and approval. Our note on the quantity surveyor report explains what that report covers.
For a bank taking the concessional capital treatment, qualifying presales must be at least equal to 100 per cent of total debt where the exposure exceeds $5 million to a single development. Below that threshold the condition does not apply. Non-bank and private lenders set their own cover deal by deal. The word doing the work is qualifying, because each lender defines it in its own policy, and development finance without presales covers the alternative route.
Often yes, but generally not from a bank taking the concessional capital treatment on an exposure above $5 million, because the presale condition attaches there. The usual path is a non-bank or private lender that is not governed by that standard, with pricing and structure adjusted for the additional risk it carries. Smaller projects sit outside the condition entirely. The route is set out in our note on development finance without presales.
Approval time is usually driven by document readiness and independent reports rather than the credit decision alone. Indicative terms can come earlier, while formal approval often waits on a sufficiently settled planning position, drawings, a building contract or tender, valuation and quantity-surveyor work. Budget weeks rather than days for those steps; the exact sequence varies by lender. How development finance works covers the sequence.
Not to have a conversation, but generally yes before a construction facility is approved, because an as if complete valuation cannot be produced until the approval and drawings specify what is being valued. Land and pre-construction funding is a separate product with its own terms. Where an approval has lapsed or been amended, that is its own problem, dealt with in our guide to refinancing a site with a lapsed or amended DA.
The lender re-tests cost to complete at the next drawdown, and if the remaining facility plus your remaining equity no longer covers it, it will generally ask for the shortfall in cash before advancing further. That is a funding requirement rather than a default, but it arrives quickly and it does not wait for the sales. The interest consequences of the delay that usually accompanies it are covered in our note on capitalised interest.
Yes, some lenders will consider a first-time developer, but the project numbers are only part of the assessment. The lender will also look at sponsor financial capacity, comparable experience, the builder and project-management team, guarantees and liquidity available for overruns. A stronger delivery team, more equity, a smaller first project or tighter conditions can sometimes mitigate limited track record; there is no APS 112 or RG 45 rule that automatically bans a first-time sponsor. Our note on development finance equity tiers sets out where the extra contribution comes from.
A release price is the amount of a lot or unit's settlement proceeds that must be paid to the development lender before it releases its security over that lot. The amount comes from the facility's release schedule or formula, so an early settlement may reduce debt without creating the same amount of free cash for the developer. Model release payments in the sell-down cash flow rather than assuming every settlement dollar is available to fund later costs or distribute as profit. Our staged drawdowns entry covers the other side of the same schedule.
A development feasibility is usually built from five components: the revenue side, the cost side, the funding structure, the programme, and the sensitivity testing that sits over all four. A lender reads them in that order but weights them differently to a developer, because it is testing whether the debt can be repaid rather than whether the profit is attractive. The component most developers under build is the sensitivity, and it is the one an assessor turns to first. Our note on development finance approval numbers covers how they interact.
The five C's are character, capacity, capital, collateral and conditions, and they still describe how a credit team frames a development submission. On a development they map onto the sponsor and builder track record, the ability to fund cost to complete, the equity contribution, the security valuation basis, and market conditions at the time. They are a useful frame but they are not the test that sets your loan size, which is decided by the instrument binding your lender and by your own serviceability.
In Australian practice the terms are used interchangeably for the same document, the financial model that tests whether a project stacks up. A valuation is a different thing entirely: it is a formal assessment of market value prepared by a valuer under professional standards, and it is the document a lender relies on. If someone offers you an appraisal in place of a valuation, those are not substitutes. Our property development finance guide sets out which document does what.
Whatever the quantity surveyor sets, because that is the figure the lender will use regardless of what you modelled. Contingency is the first line an assessor checks, since a trimmed contingency is the fastest signal that a model was built to clear a threshold rather than to be delivered. If the quantity surveyor's figure is higher than yours, the difference generally comes out of your equity rather than out of the facility. What the report covers is in our quantity surveyor note.
No template is accepted or rejected on its own. Lenders read the evidence behind the lines rather than the format of the model, so a plain spreadsheet with a source document behind every material number beats a polished output with assumptions inside it. What is worth adding to any template is a page answering the lender's questions: peak debt, cost to complete by stage, the presale schedule against qualifying tests, and the stressed case. The construction loan pack sets out the evidence each step expects.
You do if the acquiring entity is a foreign person, and it is separate from any state duty surcharge. Approval must be obtained before the acquisition, the application fees are non-refundable and scale with price, and a company can be a foreign person because of its shareholders even though it is Australian registered. At least one state requires evidence of that approval when you apply for its developer exemption. This is a matter for your solicitor, and the entity question is covered in our note on property held in a trust or company.
The ADC exposure class covers development and construction of residential or commercial property, but the specific 75 per cent and presales conditions in APS 112 are framed around ADC exposures secured by residential property. Commercial development is generally assessed on the strength of the completed asset's income, with pre-commitment leasing doing the work presales do on a residential project. Our guide to how commercial property loans work covers the completed-asset side.
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