Financing 2 to 6 Townhouses: What Changes as the Project Grows
Property Lending Hub
Small-Scale Development · Two to Six Townhouses · Self-Employed Builders
There is no Australian law that says a townhouse project becomes commercial finance at a fixed dwelling count. Lenders draw their own policy lines, while consumer credit law asks who is borrowing, what the credit is for and whether an exemption applies. This guide shows how that changes the assessment from two to six townhouses, what it means for a first-time or self-employed developer, how land equity is counted, and what happens from subdivision through to the first settlement or a decision to hold.
Quick Answer
There is no legal dwelling count at which a townhouse project automatically becomes commercial finance in Australia. For two to six townhouses, one line is the lender's own policy on how many dwellings it will still treat as residential construction. The other is the National Credit Code, which turns on who is borrowing, what the credit is for and whether an exemption applies. The same project can therefore be treated as commercial development finance by a lender and still be regulated credit. If you are self-employed or doing your first development, the assessment lane matters as much as the dwelling count. No Australian body publishes a universal equity figure for a project this size, so this guide also gives you a method for working out your own position.
Also called: small-scale development finance; townhouse development finance; multi-dwelling construction finance; small property development loan.
Start where you actually are today
- You have a block and want to know which lending lane you are in. See what the dwelling count does, and what it does not do.
- You are self-employed or this is your first development and you want to know what the lender will assess. See what changes between the residential and development lanes.
- You have found a site but the development approval is not final yet. See what can be tested before formal construction approval.
- You want a number, and every page you have read gives a different one. Work out your own, in five steps, from your own figures.
- A lender has already said no, or a valuation came back short. See what to test next, and what not to do.
- You have a builder in mind and want to know whether they can actually take the job. See the three things that decide it.
- You are ready to approach a lender and want to know what to bring. See the document set, and why each one is asked for.
- The first buyer is ready and you want to know what you will actually receive. See everything that comes out before anything reaches you.
- They are built and you are deciding whether to sell or keep them. See what happens to the facility.
How many townhouses can you build before the loan turns commercial?
There is no fixed dwelling count at which an Australian townhouse project automatically becomes commercial finance. The boundary is set by each lender's product and credit policy, and published policies can be stricter than the shorthand you hear in the market. One major bank's current construction loan fact sheet caps that product at a maximum of two dwellings on the same title, and restricts it to dwellings being built and kept for personal investment or residential purposes rather than for immediate sale. A second mainstream lender's published construction policy states a maximum of two dwellings constructed simultaneously. Both were read on 10 September 2026. That does not create a two-dwelling rule for Australia. It shows why a three or four townhouse proposal can fit one lender's specialist or development policy while sitting outside another lender's residential construction product.
What actually changes on the other side of the line is a change in kind, not a change in degree. The assessment stops being mostly about you and starts being mostly about the project: what it costs to finish, what it is worth when it is finished, and how the debt gets repaid. That brings in the vocabulary a small builder meets for the first time here, the gross realisation value of the completed dwellings and the loan to cost ratio against the total development cost, being the whole cost of getting the project built including land, construction, consultants, holding costs and contingency. It also brings a different document set, which is the subject of a lender's feasibility test.
| Project size | How lenders may classify it | What carries more weight | What usually needs to be clear early |
|---|---|---|---|
| Two townhouses | Can still fit mainstream residential construction policy at some lenders. Two mainstream lenders publish two-dwelling limits on their current construction pathways | Your serviceability, the building contract and the completed value of the pair | The approval, valuation, contract and whether you intend to hold the dwellings or sell them immediately |
| Three townhouses | Often outside mainstream retail construction policy and into either a specialist multi-dwelling lane or development finance | Your serviceability can still matter, but the feasibility, builder, cost to complete and exit become much more important | A costed feasibility, acceptable builder and contract, completed value, contingency and intended sale or hold exit |
| Four townhouses | Commonly assessed as development finance or under a specialist multi-dwelling policy rather than an ordinary construction loan | The project feasibility, sponsor position, liquidity and exit carry more weight than on a standard home build | Real equity, an acceptable builder and contract, a valuation, contingency and an evidenced sale or refinance exit |
| Five to six townhouses | Usually treated as development finance, although the exact lender panel and policy still vary | The feasibility, costs, end value, cost to complete, sponsor strength, liquidity and exit | A full project pack, cost verification or quantity surveyor oversight where required, and the lender's position on presales or the hold refinance |
Why do the answers online conflict? Because different pages are often describing different lending products. A bank's residential construction policy may stop at two dwellings, a specialist lender may accept three or four, and a development lender may start its assessment from the feasibility rather than your home-loan serviceability. A statement such as "three dwellings is commercial" or "four dwellings is commercial" is therefore useful only as market shorthand. It is not an Australian legal threshold. The useful question is which policy lane your exact project, borrower, ownership structure and exit fit today.
The practical consequence is that two lenders can look at the same set of plans and put them on different sides of the line, and both can be right. In practice, that is the single most useful thing to know before you start ringing around: you are not looking for the lender with the best rate on a townhouse project, you are looking for the lender whose policy still calls your project residential, or the one whose commercial policy is comfortable at this size. If the project is small enough to stay residential, a self-employed construction loan is usually the cheaper path, and it is worth testing that first. Where it is not, the evidence a lender wants on a project of this size is set out in what lenders lend against on a two to six dwelling project.
What the dwelling count does not do is decide which lenders will look at the project at all. That is a shortlist rather than a threshold. Nor does it decide whether the credit legislation applies to you. That is a separate test again, and it is the one the whole lane confuses.
Source note: the published construction policies referred to above are two mainstream Australian lenders' current construction loan documents, read on 10 September 2026. They are examples of lender-specific residential construction rules, not an industry-wide dwelling threshold, and any lender's policy can change without notice. We do not name lenders on this site; ask us and we will tell you which policies to test for your project.
What to do when a lender has already said no
A decline on a small development is usually a policy fit problem rather than a verdict on the project, and that follows directly from everything above: if the line is credit policy and the policies disagree with each other, then being outside one lender's policy tells you very little about the project itself. The useful move is not to reapply somewhere else immediately. It is to find out which limb actually failed, because each limb has a different fix and only one of them is about you.
Five things decline a project of this size, and they fail in a rough order: the dwelling count put it outside that lender's policy from the start; the feasibility does not stack once real contingency and holding costs go in; the builder cannot be verified for a project of this type at this size; the cost to complete does not reconcile with the funds available; and the exit is assumed rather than evidenced. Only the first is a lender-shopping problem. The middle three are fixable on paper before anyone else sees the file. The last one is usually the real answer.
What does avoidable damage is firing off applications one after another to find out which it was, because each application leaves an enquiry on your credit file and a cluster of them reads badly to the next assessor: see how many credit enquiries is too many. If the number that came back short was the valuation rather than the credit decision, that is a different and better understood problem, and the response is a known process rather than a dead end: what happens when a valuation falls short. Either way the sequence is the same one a broker runs, and it is set out in what a broker can actually do after a decline.
Can your builder actually take the job?
Whether your builder can take the job is a different question from whether they are any good, and on a small development it is decided in three places: the licence they hold, the insurance that has to attach to the work, and, in Victoria, a regulator-set ceiling on how much work they are allowed to hold at one time. All three are checkable before you sign a contract, and all three can stop a project that is otherwise fine.
The lender's version of this is simpler than it looks. A registered builder under a fixed price contract is the standard case and the widest lender panel. Building it yourself as an owner-builder is a different panel and a different assessment, and a licensed builder developing their own site sits between the two. That is a fact about who will look at the file rather than a judgement about competence, and it is worth settling before the contract type is chosen: see how an owner-builder funds a first development.
Victoria changed both limbs on 1 July 2026, and the second change is the one that reaches your project. Home Warranty replaced Domestic Building Insurance for new eligible domestic building work, and Minimum Financial Requirements replaced the old eligibility assessment, with a registered domestic builder's approved limit at 30 June 2026 carried across as a Maximum Construction Capacity that sets the total value of domestic building work they can hold at any one time. A builder can be licensed, insured, experienced and still be unable to take your townhouses because their capacity is committed elsewhere. Ask the question before you sign, not after the feasibility is built around their price.
| What changed | What applies to new eligible work |
|---|---|
| The cover itself | Home Warranty replaces Domestic Building Insurance for new eligible domestic building work |
| Policies already on foot | Policies issued up to and including 30 June 2026 continue under the earlier scheme on their original terms and do not transfer across |
| What work is covered | Generally eligible domestic building work valued above $20,000, in homes and residential buildings up to three storeys |
| Maximum cover | $400,000, subject to limits and exclusions |
| Who pays, and who is told | The builder pays the applicable premium, and the commission gives the homeowner a notice of cover once it accepts that premium |
| How much work a builder can hold | Minimum Financial Requirements replace the earlier eligibility assessment, and an approved limit held at 30 June 2026 becomes that builder's Maximum Construction Capacity |
Source for the table: Building and Plumbing Commission, Home Warranty and financial requirements, published 30 June 2026, last updated 20 August 2026, read 10 September 2026. This is Victoria. Every other state and territory runs its own builder licensing and statutory warranty scheme with its own thresholds, and nothing in the table above reads across to them. Note also that a search for a first-time developer's deposit will return the federal first home buyer schemes, which are a different thing entirely: those are consumer schemes for people buying a home to live in, not funding for someone building dwellings to sell.
Can a first-time or self-employed developer finance 2 to 6 townhouses?
Yes. A first-time or self-employed developer can be considered for a two to six townhouse project, but the evidence that matters changes with the lending lane. If the project stays inside residential or specialist construction policy, personal serviceability and the lender's treatment of self-employed income can still decide the file. If it is treated as development finance, the lender puts more weight on the feasibility, the builder and project team, real equity, cost to complete, liquidity and the exit, while still assessing the people and entities behind the project.
There is no published national rule that says an Australian developer must have completed a fixed number of previous projects before development finance can be approved. We could not find an ASIC rule, APRA prudential rule or other national lending standard that sets a one-project, two-project or three-project minimum. Individual lenders can still make experience a hard credit criterion or a risk factor. On a first development, the practical response is usually to make the rest of the delivery case stronger: an experienced licensed builder and project team, a simpler project, clearly evidenced equity and liquidity, realistic contingency and a credible exit.
The mistake is assuming that calling a loan "commercial" makes the borrower irrelevant. It does not. What changes is the question the lender is trying to answer. A residential construction lender asks whether you can service the debt and complete the build. A development lender asks whether the whole project can reach completion and repay the facility, and then tests whether the sponsor, builder and capital behind that plan are credible enough to deliver it.
| What is being tested | Residential or specialist construction lane | Development finance lane |
|---|---|---|
| Your income | Can be central. The lender assesses the self-employed income evidence and personal serviceability under that product's policy | Still relevant to sponsor strength and liquidity, but the project feasibility and exit carry more of the repayment case |
| Your development track record | Often less important than serviceability, security and an acceptable building contract | More important. A first development can still be considered, but the lender may look harder at the builder, development manager, consultants, equity and project simplicity |
| The builder and contract | An acceptable licensed builder and construction contract are part of the construction assessment | The builder, contract, cost verification and ability to finish inside the remaining facility become core credit questions |
| Your equity and liquidity | The lender tests the deposit or equity position and whether you can fund costs outside the approved loan | The lender tests what is genuinely contributed, what remains available for overruns and whether the facility stays in balance through completion |
| The exit | If you intend to hold, serviceability after completion matters. If you intend to sell, the lender still needs to understand that intention | Sale, refinance or a combination has to be credible enough to clear the facility within its term |
| Company or trust borrower | Availability can narrow because borrower and product eligibility vary sharply by lender | A company or trust can be used in a development facility, but lender policy differs and the lender still assesses controllers, security providers and any guarantees required by its documents |
From our broking, indicative
The fastest way to get the wrong answer is to ask only "can you finance four townhouses?" before saying who owns the land, who will borrow, whether this is your first development, whether you are the builder, and whether the finished dwellings will be sold or held. Those facts can move the file into a different policy before rate or leverage is even discussed.
Indicative only, based on deals we have placed. Actual lender treatment depends on the project, borrower, entity, security, builder and policy at the time of application.
Can you speak to a lender before the development approval is final?
Yes. You can test policy fit, likely lender lane and an indicative structure before the development approval is final, and doing that early can stop you buying or designing into a finance problem. Formal construction approval and first drawdown normally require the lender's conditions to be satisfied, which commonly means the approved development, final plans, costings or building contract, valuation and any cost report it requires.
If you are still buying the site, treat the land acquisition and the later construction facility as two connected decisions rather than assuming one automatically becomes the other. The detailed sequencing is covered in development site finance before approval. If your income is the part that does not fit a standard construction lender, see how self-employed construction income is assessed. If the issue is lack of development history rather than income, a first development has a different set of credit questions.
When does consumer credit law actually cover a small development?
Consumer credit law can cover a small residential development, and the dwelling count does not decide it. ASIC says the National Credit Code applies where the debtor is a natural person or strata corporation and the credit is provided wholly or predominantly for a Code purpose, including purchasing, renovating or improving residential property for investment. ASIC also states that "predominantly" means more than half of the credit is intended for that purpose. The governing instrument is the National Consumer Credit Protection Act 2009, Schedule 1, the National Credit Code, and ASIC's developer-specific explanation is in Information Sheet 101.
A company borrower sits outside that debtor limb because the Code catches natural persons and strata corporations, not companies. That does not mean every loan to a natural person for several dwellings is automatically regulated either. Regulation 65C creates a specific exemption for residential-investment credit where the investment is not in a single residence and the total credit provided or to be provided is more than $5 million. The purpose, borrower and any exemption therefore have to be tested together rather than inferred from the number of townhouses.
Put the two lending lines together and the useful case becomes clearer. A natural person borrowing below that exemption threshold to build three townhouses and hold them as residential investments can be treated by a lender as a commercial development under its own dwelling-count policy and, assuming the other Code conditions are met, still have regulated credit because of who is borrowing and what the credit is predominantly for. Lender classification and the legal perimeter are different tests, and both can be live on the same project.
| The question | Consumer credit law perimeter | The lender's dwelling-count policy |
|---|---|---|
| What it turns on | Who is borrowing, and what the credit is for | How many dwellings that lender will still treat as residential |
| Who decides it | Parliament, through the credit legislation, administered by the corporate regulator | Each lender, in its own credit policy, and the mortgage insurer behind it |
| Where it is written down | In the National Credit Code and the guidance the corporate regulator publishes about it | In internal credit policy documents, lending guidelines and insurer underwriting standards |
| What changes if you are inside it | National Credit Act obligations, prescribed disclosure and statutory hardship protections can apply | The lender changes the way it assesses the project, security, drawdowns, reporting and exit under its own policy |
| Whether the other test still applies | Yes. Code coverage does not decide whether the lender calls the project residential or commercial | Yes. A commercial classification does not by itself remove Code coverage; the borrower, purpose and exemptions still have to be tested |
| What you get, or do not get | If the credit is regulated | If the credit is not regulated |
|---|---|---|
| How the assessment is made | Responsible lending obligations apply to the assessment | The lender's own credit policy governs, and its view of purpose still drives its process |
| What you are given before you sign | Prescribed pre-contractual disclosure and a contract in the required form | Whatever the contract provides, in the form the lender uses |
| If the project stalls | Statutory hardship provisions are available to you | Terms, default triggers and enforcement sit where the contract puts them |
| If something goes wrong with the lender | AFCA may be available, subject to its Rules and the financial firm being within the scheme | Do not assume AFCA disappears. Eligible small businesses can also use AFCA for many business and commercial loan complaints where the firm is an AFCA member and the complaint is within its jurisdiction |
| Structure and tax | Follows the entity you borrow in, not the loan | Follows the entity you borrow in, not the loan |
Two things follow. First, structure and tax questions belong with your accountant and solicitor because the borrower entity changes both and a lender will not advise on either. Second, "unregulated" is not shorthand for "no external complaint option". AFCA says it can consider many complaints from eligible small businesses about business finance and commercial loans, subject to its Rules, monetary limits and the financial firm being a member. AFCA also warns that not every small-business lender is required to be a member. Check the lender's AFCA status before signing rather than after a dispute starts.
The presale question is where a regulated buyer and a commercial developer can meet in the same transaction. A contract that is signed but cannot settle can affect the buyer's finance and your development facility at the same time. Where the project is small enough to stay inside residential policy, a construction loan written for a self-employed borrower keeps the mechanics simpler, but it does not decide the legal perimeter.
Does anyone in Australia publish how much equity a small development needs?
No Australian government body, regulator, statistical agency, valuation institute or building industry association publishes an equity, deposit, loan to cost or loan to value figure for a development of this size, and the framework that comes closest is written for someone else. That is a statement about what we searched for and did not find, on the build date, using the bodies named below. It is not a claim that no such figure exists anywhere.
The closest instrument is the prudential regulator's residential mortgage lending practice guide, current at 19 June 2025. Read in full it contains no occurrences at all of dwellings, multi-dwelling, construction, subdivision, townhouse or loan-to-cost. That is not a criticism of the regulator. The guide is built around lending to the buyer of a completed dwelling, and it does its job. It simply does not reach the person building four of them, which is why a small developer who goes looking for an official number comes back empty handed.
Two things in that guide still matter to a developer, and both sit on the buyer's side of the transaction. The first is that on off-the-plan sales, developer prices might not represent a sustainable resale value, so a prudent institution would make appropriate reductions in the off-the-plan prices in determining loan to valuation ratios, or seek independent professional valuations. The second is sharper, and almost nobody joins it to the developer's own position: developer discounts would not be treated as part of the borrower's deposit for loan to valuation purposes, because such discounts reduce the sale price but do not increase the borrower's deposit. If your sales strategy leans on a rebate to get presales signed, that is the sentence that explains why a signed contract can still fail to settle when the buyer's own lender assesses it. The tax rules describe the same habit from the other end: where a rebate or discount is applied before settlement the contract price is reduced, so the goods and services tax the buyer withholds is calculated on the reduced price. A rebate shrinks the withholding and does nothing for the buyer's deposit at the same time, which is two regulators describing one developer behaviour from opposite sides. The same guide defines an off-the-plan valuation as a valuation made on the basis of a development plan, not on the basis of the finished property. All three are guidance rather than law: practice guides do not themselves create enforceable requirements.
| Body searched | What it does publish | Does it set an equity or loan-to-cost figure for a development of this size |
|---|---|---|
| The prudential regulator's residential mortgage practice guide | Sound practice guidance for lending against a completed dwelling, including how off-the-plan prices and valuations are treated | No published figure located |
| The corporate regulator's credit material | When the credit legislation applies to a loan, by who is borrowing and for what purpose | No published figure located |
| The national statistical agency's building approvals | New dwellings approved, and the value of non-residential building approved, monthly | No published figure located |
| The national valuation institute | Valuation standards, and the difference between a professional valuation and a market appraisal | No published figure located |
| Building industry associations | Industry commentary, cost movement and member guidance | No published figure located |
The rest of the search is quickly told. The national statistical agency publishes new dwellings approved and the value of non-residential building approved each month, which measures activity and not lending terms. The national valuation institute publishes valuation standards, and the useful point for a developer is that a bank valuation is prepared to a professional standard by a certified valuer carrying professional indemnity cover, which is not the same exercise as a market appraisal and not the same number as a contract price. Neither of them sets a loan to value ratio or a loan to cost ratio for a small development.
What a lender measures on a small development
- Equity contributionWhat you are putting in, in cash or in land already owned, before the lender funds anything.
- Loan to costThe facility measured against the total development cost, being land, construction, consultants, holding costs and contingency.
- Loan to gross realisationThe facility measured against what the finished dwellings are expected to sell for, before selling costs and tax.
- Cost to completeWhat is still to be spent to reach completion, and whether the remaining facility plus your contribution covers it.
- ContingencyThe allowance held back for the things a small project discovers after it starts.
- ExitHow the debt is actually repaid, by sale, by refinance, or by a combination.
Labels only. No band is printed here, and that is deliberate: no Australian body publishes one for a development of this size, and the figures circulating publicly come from lender, broker and builder marketing.
So where do the numbers you have already read come from? Lender, broker and builder marketing, almost without exception. That does not make every one of them wrong, and it does not mean a lender will not quote you something similar. It means none of them is a standard, none of them is evidence you can hold a lender to, and a figure repeated across a dozen pages is still one source repeated a dozen times.
How to work out your own number in five steps
What replaces a published figure is a method, and it is short enough to do on one page before you speak to anyone. Work through it in order, because each step feeds the next, and use the documents named in the third column rather than your own estimates: the whole point of the exercise is to arrive at the numbers a credit team would arrive at, not the ones your feasibility hopes for.
| Step | What you are working out | Where the number has to come from |
|---|---|---|
| 1. Total development cost | Everything it takes to get the project finished: land at the value the lender will use, construction, consultants, council and authority contributions, holding costs and a real contingency | The building contract and the builder's costings, plus your own quotes for the items outside the contract. Not a rate per square metre from a website |
| 2. Gross realisation | What the finished dwellings are expected to sell for in total, before selling costs and before tax | A valuation on an as if complete basis, instructed by the lender. Agent appraisals are a starting point and are not the number the lender uses |
| 3. Your contribution | Cash you will actually put in, plus the net equity in land you already own, less anything already drawn against it and spent elsewhere | The title, the current loan statement and payout figure, and your bank statements. The equity is the net position, not the headline value |
| 4. The gap | Total development cost less your contribution. That is the facility you are asking a lender for, and it is the number the conversation is actually about | Arithmetic from steps 1 and 3. If it moves when you re-run it, step 1 was an estimate rather than a cost |
| 5. Test the gap twice | The gap measured against total development cost, and the same gap measured against gross realisation. Lenders apply a limit to both and the tighter one governs | Steps 1, 2 and 4. Where the two tests disagree sharply, the end value is usually carrying the project rather than the equity |
Two things fall out of doing it in that order. If the gap only works because of an uplift on a valuation you have not obtained, you do not have a contribution yet, you have a hope. And if the two tests in step five disagree, you have found the reason a lender will say no before the lender has: the project is relying on the finished value rather than on what you are putting in. Deciding whether that is worth pursuing before you have a site is a gross realisation and feasibility question. If you want it tested against your own project rather than a published band, check what your project looks like to a lender.
Can you use land you already own as the deposit for a townhouse build?
Land you already own can count as the equity contribution on a townhouse build, and what decides how far it stretches is whether the lender takes it at what you paid for it or at what it is worth now, and what is still owing against it. It is treated as a contribution rather than a deposit, and it is the most common form of equity in a small development.
The cost against value question is a credit policy decision, not a valuation question, and it is worth asking early because it can change the whole shape of a project. Land bought recently is often held at cost, on the reasoning that a purchase price agreed at arm's length is the best evidence of what the land is worth. Land held for years, or land that has been rezoned or has since obtained approval, is more often taken at current market value. Where the uplift is the reason the project works at all, that difference is not a detail, it is the project. This is where land banking and buying a site before approval either pay off or do not.
| What the lender looks at | What it usually means for your equity contribution |
|---|---|
| What you paid for the land | Held at cost. Common where the land was bought recently, on the view that a purchase price is the best available evidence of value |
| What the land is worth today | Held at current market value, supported by a valuation the lender instructs itself rather than one you supply |
| What is still owing against it | Deducted. The equity is the net position, not the value, and an existing mortgage usually has to be refinanced or discharged into the facility |
| How long you have held it | Longer holding periods make a current market value more likely. Recent purchases are more often held at cost |
| Whether a caveat or vendor terms sit on the title | Slows or reduces it. The lender needs a clean first mortgage position, so caveats and vendor finance have to be dealt with before settlement |
| Which entity holds the land | If the land and the borrower are different entities, the lender needs the ownership, guarantees and consents mapped before approval rather than discovered at settlement |
| Who is giving guarantees | A company or trust borrower does not automatically isolate the people behind it. Any personal or corporate guarantees are separate security obligations that your solicitor should review before you sign |
An existing mortgage over the land almost never survives in its current form. A development lender wants a clean first mortgage over the whole site, so the usual sequence is that the existing loan is refinanced into the development facility at settlement of the new facility, or discharged and replaced. Where a second lender stays behind the first, it does so by agreement and by deed, and that is a documented arrangement rather than an informal one: see how a second mortgage behind a construction loan actually sits, and where each piece lands in the capital stack.
If there is still a mortgage over the house, do not demolish first and try to sort the finance out afterwards. Demolition removes the existing improvements from the lender's security and changes the property into a construction or development risk. Tell the existing lender what is proposed before demolition and obtain whatever consent, variation, revaluation or refinance it requires under the loan and mortgage documents. Mainstream lenders themselves treat knock-down and rebuild as an ordinary construction loan use case: two of the major banks' current published construction guidance expressly covers it, and one of those caps that same pathway at two dwellings on one title, which is the point at which a three or four townhouse plan falls out of it. If your existing lender's construction policy will not accept the three or four townhouses you plan to build, the refinance problem exists before demolition, not after it.
What lenders actually look at first, before any of this, is whether the total contribution is real and whether it is already spent. Equity that exists only as an expected uplift on a valuation you have not obtained is not a contribution. Equity you have already drawn down and used elsewhere is not a contribution either. If your starting point is equity in a property rather than cash, the sequencing matters more than the amount, and it is common to find that the second mortgage which unlocked the land is the thing now standing in the way of the build.
What to have ready before you approach a lender
Every item below exists because it answers a question the credit team will ask anyway, and having them assembled changes the conversation from a series of requests into an assessment. It also does something less obvious: gathering them is the fastest way to find out whether your own feasibility survives contact with the documents, which is a much cheaper place to discover a problem than a credit decision.
| What to have | What the lender is actually testing with it |
|---|---|
| Contract of sale and settlement statement for the land | What you paid and when, which is what decides whether the land is held at cost or at current value |
| Current loan statement and payout figure | What is owing, because the equity is the net position and the payout has to be funded at settlement |
| Existing lender consent or refinance path before demolition | Whether the current lender will permit the security to be demolished and rebuilt, or whether the loan has to be varied, revalued or refinanced before works start |
| Title search showing caveats, covenants and easements | Whether a clean first mortgage over the whole site is available, and what has to be removed first |
| Company, trust and guarantor documents where relevant | Who is actually borrowing, who controls the borrower, who owns the security and which people or entities will be asked to guarantee or consent |
| Development approval and the stamped plans | What can actually be built, and which approval conditions sit on the critical path to registration |
| Fixed price building contract and the builder's costings | The cost side of the feasibility, and whether the contract carries the risk or you do |
| The builder's licence, insurances and history on this type of project | Whether the builder can be verified at this size, which is assessed separately from the price |
| Your feasibility with contingency and holding costs shown separately | Whether the project stacks once the real cost of time is in it. The lender rebuilds this anyway |
| Evidence of the exit: the sales approach, or your servicing position if holding | How the debt gets repaid. This is the limb most often assumed rather than evidenced |
If a valuation comes back below what your feasibility assumed, the response is a known process rather than a dead end, and the shape of it is set out in what happens when a valuation falls short. Where the numbers are marginal, the honest measure is the loan to value ratio the lender will actually use, not the one your own numbers produce. The evidence a specific project needs is set out on the page covering what lenders lend against on a two to six dwelling project.
When do the townhouses get separate titles, and what does the lender need first?
Separate titles come into existence when the plan of subdivision is registered at the state or territory land titles office, and until then the lender holds one mortgage over the whole parent site. There is nothing separate to sell before that moment, however finished the buildings look.
The sequence runs from plan to registration to title issue to lender consent to partial discharge, and each step has a document the lender wants before it will move to the next one. A partial discharge is the release of the lender's mortgage over one lot while its security over the rest of the parent land stays in place. The lender is not obliged to give one just because a buyer is ready.
| Step | What happens | What the lender needs at this point |
|---|---|---|
| Plan of subdivision prepared and lodged | A licensed surveyor prepares the plan and it is lodged with the state or territory land titles office, usually after the works are substantially complete | Consent as mortgagee to the plan, and confirmation the plan matches the security it holds |
| Plan registered | Registration is the moment the new lots come into existence as separate parcels of land | Evidence of registration, and an updated title search over the parent land |
| New titles issue | Individual titles issue for each lot, each one still carrying the lender's mortgage over it | Confirmation that the titles issued match the approved plan and the sales contracts |
| Release price agreed and met | The agreed amount for that lot is paid off the parent debt from the sale proceeds or from your own funds | The settlement statement for that lot, and payment of the release price before it will act |
| Lender releases the lot and it settles | The lender executes a partial discharge over that lot and the sale settles free of its mortgage | A discharge authority in place ahead of settlement, not on the day |
The part that is unserved almost everywhere is the release price. Do not assume it equals the original loan divided by the number of townhouses, or the same percentage of every sale. It is the amount or formula the lender requires before it will discharge its mortgage over that particular lot. One major lender's published partial-discharge guidance, read on 10 September 2026, says the lender advises the amount required to partially pay out the loan, and that in some circumstances the full net sale proceeds may be required. A development facility can be more prescriptive because the release schedule is part of the sell-down that is meant to retire the project debt. Ask whether your release amount is fixed, formula-based or capable of being re-tested under the facility documents, and what happens if a lot sells below the value or sale price the lender assumed. Capitalised interest increases the facility balance that has to be retired, but it should not automatically be subtracted a second time after the release payment unless the facility or settlement statement requires a separate payment. Model the facility balance before and after every release before you sign.
What actually reaches you at the settlement of the first townhouse
What reaches you is the net settlement surplus after the actual settlement adjustments and the lender's required release payment, not the headline contract price. Start with the settlement proceeds, account for the contract deposit, goods and services tax withholding and selling or legal adjustments, then apply the release amount required by the lender. Capitalised interest usually sits inside the outstanding facility balance, so do not deduct it again as a separate item unless the facility documents or settlement statement say it is separately payable.
The tax limb is the one most often missed because it does not look like a finance question. Since 1 July 2018 most purchasers of new residential premises pay the withheld amount of goods and services tax direct to the Australian Taxation Office at settlement, and pay the supplier the balance of the sale price less that withholding. The amount is one eleventh of the contract price on a taxable supply, or seven per cent of the contract price where the margin scheme applies. The supplier has to notify the purchaser in writing before settlement and state the amount, and penalties attach to getting that wrong.
| Settlement item | How to treat it | Why it matters |
|---|---|---|
| Contract deposit already paid | Credited in the settlement accounting. It is not a second payment of the deposit on settlement day | Where and how the deposit is held or released depends on the contract and the law applying in that jurisdiction, so use the conveyancer's settlement statement rather than assuming it is free cash |
| Goods and services tax withheld by the buyer | Generally one eleventh of the contract price on a fully taxable supply, or seven per cent where the margin scheme applies | The purchaser pays the withheld amount direct to the Australian Taxation Office rather than to the developer |
| Lender release payment | The amount or formula in the facility documents or release schedule | It reduces the parent facility and is the condition for the lender releasing its mortgage over that lot |
| Selling and legal adjustments | Agent commission, legal costs and any other settlement adjustments that apply to that lot | They reduce the cash available after the sale before any surplus is available to the developer |
| Capitalised interest already in the debt | Interest added to the facility increases the outstanding debt balance through the build | It affects how much debt remains after each release. Do not subtract the same interest twice unless the documents require a separate settlement payment |
| Net surplus | The amount left after the actual settlement adjustments and required lender payment | This is the figure available to you or the project. It can be much lower than the contract price, especially on early settlements where the release schedule is debt-heavy |
Two things about the tax limb make the cash position worse than the table suggests, and both are timing rather than amount. The withheld amount is credited to your goods and services tax property credits account and only moves into your activity statement account when you lodge the relevant activity statement, so it leaves the settlement, never reaches your bank account, and comes back on the reporting cycle rather than on the day. And foreign resident capital gains withholding can apply to the same settlement alongside it, with neither taking precedence over the other, so a single sale can carry two separate withholdings. Source: Australian Taxation Office, GST at settlement, last updated 4 June 2025, read 10 September 2026. Whether the margin scheme is available to you at all, and what your position is, is a question for your accountant.
Which dates are yours to set, and which are not
Only two of the six dates that govern a small development are actually yours, and the one that everything else waits on belongs to a land titles office you cannot ring. That is the structural reason development facilities on small projects run out of time: the expiry date is negotiated at the start against a registration date that nobody in the room controls.
| The date | Who actually sets it |
|---|---|
| The facility expiry date | Your lender, when the facility is written, usually the build period plus a sales period. This one is negotiable, and it is the only real protection you have against everything below it |
| Practical completion | The builder and the certifier, against the contract and the conditions on the approval |
| Lodgement of the plan of subdivision | Your surveyor, and your lender, because it has to consent as mortgagee before the plan can proceed |
| Registration of the plan | The state or territory land titles office, on its own processing times. Nothing you do moves it |
| The sunset date in each off the plan contract | The contract, negotiated with buyers before you knew any of the dates above |
| The first settlement | The buyer and their lender, once separate title actually exists |
The practical move follows from the table. Negotiate the facility term against the registration date rather than against practical completion, because the gap between those two is where small projects die, and set the sunset dates in your contracts with the same gap in them. A facility that expires the month registration is expected is a facility that will need an extension under pressure, which is the worst position from which to ask for one: see what happens when a development facility expires before completion.
From our broking, indicative
What follows is qualitative on purpose. Every quantum figure circulating on this lane traces back to marketing rather than to a published standard, which is the point of the section above, so printing an indicative band here would contradict it.
- What gets a small development declined, roughly in the order it happens: the feasibility does not stack once the real contingency and holding costs go in; the builder cannot be verified for a project of this type at this size; the cost to complete does not reconcile with the funds available; and the exit is assumed rather than evidenced.
- The presale problem at this size has a particular shape. Small projects are often too small to interest the buyer's agents who move stock, and the sales that do come are the ones most exposed to a valuation coming in under contract, which is exactly the failure the practice guide describes from the buyer's side.
- Where this commonly lands on the first settlement: the developer expects the sale price and receives only the net amount left after settlement adjustments and the lender's release payment. Capitalised interest has already increased the debt balance, so the important model is the facility balance before and after each release rather than subtracting the same interest twice.
Indicative only, based on deals we have placed, current as at the reviewed date on this page. Not a quote and not an offer. Actual terms depend on lender policy and your circumstances at the time of application. Not financial advice.
Timing and terminology differ by state and territory. Victoria has the sharpest consumer-facing rules on the buyer's side of an off-the-plan purchase: Consumer Affairs Victoria states that a buyer is required to pay a deposit of no more than ten per cent of the contract price, and that if the plan of subdivision is not registered by the time specified in the contract, or the default time of eighteen months, the buyer has the right to end the contract and get the deposit back. That is Victoria, and it should not be read across to other jurisdictions. What it tells every small developer, wherever the site is, is that the registration date is not just an administrative milestone. It is a date your buyers may be able to walk on, which is why a sunset date closing in is a finance problem and not only a legal one.
Two things sit upstream of all of this and are worth naming while there is still time to act on them. Registration usually cannot happen until the works are complete and signed off, which puts the development approval conditions and the practical completion date on the critical path. And the money that gets you there is released against progress claims certified by a quantity surveyor, so a quantity surveyor who disputes a claim, or a cost overrun mid build, moves the registration date and therefore moves every settlement behind it.
If you keep the townhouses instead of selling, what happens to the facility?
The development facility does not simply continue, because it was written to be repaid from sales, so keeping the dwellings means refinancing onto something built to be held. This is a facility question. Whether keeping them is the right call for your wealth position, your depreciation or your tax is a question for your accountant, and this page does not argue it.
A development or construction facility carries a hard expiry and is sized against an assumption that the stock sells. That assumption is not a preference, it is structural: the interest is often capitalised, the release prices are set to retire the debt across the sell-down, and the term is set to the build plus a sales period. When the plan changes to holding, every one of those settings is now working against you, and the facility runs out of time whether or not the buildings are finished. What that looks like when it happens is set out in what happens when a development facility expires before completion.
| What changes | Selling down | Holding instead |
|---|---|---|
| What happens to the facility | It repays the way it was written to repay | It has to be refinanced. It is not extended by default |
| How each dwelling comes free | Each lot releases against its release price at settlement | Titles have to be registered and the works complete before anything can roll |
| What the lender relies on | The exit is evidenced by contracts rather than by intention | A valuation on an as complete basis replaces the sales evidence |
| What the assessment moves to | Sale proceeds against the parent debt | Rental income and your own servicing position |
| What happens to interest | It stops as the debt retires across the sell-down | It keeps running, on a facility usually priced above a standard investment loan |
What has to be in place before anything will roll is the same short list every time: the works complete and signed off at practical completion, the plan registered and separate titles issued, and a valuation on an as complete basis rather than an as if complete one. The point in the project where the lender re-tests all of this is described in what happens to a development loan at practical completion, and it is the moment a hold decision either has a path or does not.
The path itself is a residual stock facility, which is a loan written against completed, titled dwellings that have not sold. It exists to give a developer time rather than to be a long term hold: it is usually shorter and priced above a standard investment loan, and it is assessed on the value of the stock and on your capacity to hold it. What that looks like in practice on a small townhouse project is set out in holding completed townhouses on a residual stock loan, and the term itself is defined in the residual stock loan entry. From there the usual destination is a standard investment facility once the dwellings are tenanted and the income is evidenced, which is a different assessment again, because there are tenants instead of buyers.
The trap is deciding late. A hold decision made while the facility is being written is a structuring choice. The same decision made late is a refinance under time pressure, against a facility running out of time, with a lender who knows the clock, and it is where a valuation that comes back short does the most damage. If holding is even a possibility, say so at the start. It changes which lender you should be talking to, and it costs nothing to raise then. The exit is the part of a development deal that gets decided first and thought about last.
Two to six townhouses sit in the awkward middle of Australian property lending, and the confusion is structural rather than accidental. The dwelling count is lender policy, not a rule of law, and published residential construction policies can stop as low as two dwellings even though other lenders will fund three or more under specialist or development policies. The National Credit Code is a separate test, turning on the borrower, the purpose of the credit and any applicable exemption. For a first-time or self-employed developer, there is no national fixed-project-history rule, but lender-specific experience requirements can change how heavily the credit team relies on the builder, project team, equity, liquidity and exit. Nobody official publishes a universal equity or loan-to-cost figure at this size, so the useful answer is a method rather than a marketing percentage. If an existing mortgaged house will be demolished, resolve the current lender's consent or refinance before demolition. At the other end of the project, model each settlement against the actual release schedule and facility balance rather than a pro-rata share of the loan: the release payment and settlement adjustments decide the surplus, while capitalised interest has already increased the debt being retired.
Key takeaway: before you commit, settle five questions: which lending lane the project is in, what value the lender gives your land, what must happen before demolition, what evidence the lender needs to reach completion, and exactly how each lot release reduces the debt.Frequently Asked Questions
There is no fixed Australian dwelling count that every residential construction lender uses. Published policies already differ from the common four-dwellings shorthand: two mainstream lenders publish construction pathways capped at two dwellings, while specialist and development lenders can assess larger multi-dwelling projects under different policies. The count is therefore a lender and product policy question, not a legal threshold. Test the exact project, borrower structure and intended sale or hold exit with the lender rather than assuming three or four dwellings automatically decides the loan type.
A townhouse development loan can be regulated credit in Australia, and the dwelling count does not decide it. For a natural person or strata corporation, the National Credit Code can apply where the credit is wholly or predominantly for a Code purpose, including residential-property investment; ASIC says predominantly means more than half. Loans to companies sit outside that debtor limb, and regulation 65C also exempts certain residential-investment credit above $5 million where the investment is not in a single residence. A lender can therefore call the project commercial while the legal perimeter still has to be tested separately.
Presales are not always required on a small townhouse development, and at this size the answer depends on the lender and on how the project is funded rather than on a rule. Where a lender does require presales, it wants sales that will actually settle: arm's length, to unrelated buyers, on terms that a valuer and the buyer's lender will both accept. A discounted or rebated sale can be signed and still fail at settlement, because a developer discount reduces the sale price without increasing the buyer's deposit.
Yes. Land you already own is the most common form of equity in a small development, and lenders treat it as a contribution rather than as a deposit. What decides how far it stretches is the value the lender uses and what is still owing against it, because the equity is the net position and not the headline value. If there is a mortgage over the land it usually has to be refinanced or discharged into the development facility.
A lender can hold your land either at what you paid for it or at what it is worth now, and which one it uses is a credit policy decision rather than a valuation question. Land bought recently is often held at what you paid for it, on the view that an arm's length purchase price is the best available evidence of value. Land held for longer, or land that has been rezoned or has since obtained approval, is more often taken at current market value, supported by a valuation the lender instructs itself. Ask the question early, because on a marginal project the difference between the two is the project.
An existing mortgage over the land usually does not survive in its current form when a development loan starts, because a development lender wants a clean first mortgage over the whole site. The common sequence is that the existing loan is refinanced into the development facility at settlement, or discharged and replaced. If an existing house is going to be demolished, tell the current lender before demolition and obtain whatever consent, variation, revaluation or refinance it requires under the loan and mortgage documents. Do not assume you can demolish the lender's existing security first and arrange the development facility afterwards.
A dual occupancy is normally financed as a residential construction loan, because two dwellings usually sit inside what lenders still treat as residential lending. The assessment looks at your income and the value of the finished pair, and the money is released in stages against the builder's certified claims. It becomes a different conversation once each dwelling is going on its own title and you intend to sell one, which is where the dwelling-count policy starts to bite. What lenders actually assess across this whole band is set out in what lenders lend against on a two to six dwelling project.
Separate titles come into existence when the plan of subdivision is registered at the state or territory land titles office, which happens near the end of the project rather than at the start. Until registration the lender holds one mortgage over the whole parent site and there is nothing separate to sell. After registration the individual titles issue, and each one still carries the lender's mortgage until that lot is released. Timing and terminology differ between states and territories.
A release price is the amount or formula the lender requires before it will discharge its mortgage over an individual lot. Do not assume it is the original loan divided by the number of townhouses or the same percentage of every sale. The lender may require a debt-heavy release and, in some circumstances, full net sale proceeds. Ask whether the release amount is fixed, formula-based or capable of being re-tested under the facility documents, and what happens if a lot sells below the lender's assumed value. Capitalised interest normally increases the facility balance that the release payment reduces, so do not subtract the same interest twice unless the documents require a separate payment.
A decline on a small development is usually a policy fit problem rather than a verdict on the project, because the dwelling-count line is set by each lender's own credit policy and the same plans can sit on different sides of it at different lenders. The first step is to find out which limb actually failed: the dwelling count, the feasibility, the builder, the cost to complete or the exit. Each of those has a different fix and only one of them is about you. What does real damage is firing off applications one after another to find out, because every one of them leaves a credit enquiry on your file. See what a broker can do after a decline.
Selling newly built townhouses generally involves goods and services tax, and since 1 July 2018 the buyer pays the withheld amount direct to the Australian Taxation Office at settlement rather than paying it to you. Whether the margin scheme is available to you, and what your overall position is, turns on how the project is structured and is a question for your accountant rather than your lender. It belongs in a finance conversation anyway, because the amount that actually reaches you at each settlement is what has to clear the release price on that lot. Get the answer before the facility is written rather than at the first settlement, because it changes the cash flow the whole sell-down depends on.
The withheld amount is one eleventh of the contract price on a taxable supply of new residential premises, or seven per cent of the contract price where the margin scheme applies, and the buyer pays it direct to the Australian Taxation Office at settlement rather than to the developer. As the supplier you have to notify the buyer in writing before settlement and state the amount. The withheld amount is then credited to your goods and services tax property credits account and only moves into your activity statement account when you lodge the relevant activity statement, so it does not reach your bank account on the day of settlement. Source: Australian Taxation Office, GST at settlement, last updated 4 June 2025.
A Maximum Construction Capacity is the total value of domestic building work a registered domestic builder in Victoria is allowed to hold at any one time. It applies from 1 July 2026, when Minimum Financial Requirements replaced the earlier domestic building insurance eligibility assessment, and a builder holding an approved limit on 30 June 2026 carried that limit across as their capacity. It matters on a small development because a builder can be licensed, insured and experienced and still be unable to take your project if their capacity is already committed elsewhere. Other states and territories run their own schemes, so this is a Victorian question rather than a national one.
Yes. A first-time or self-employed developer can be considered for three or four townhouses. There is no published national rule requiring a fixed number of previous developments, but individual lenders can make experience a hard criterion or a risk factor. In a residential or specialist construction lane, personal serviceability and self-employed income evidence can be decisive. In a development lane, the feasibility, experienced builder and project team, real equity, liquidity, cost to complete and exit carry more weight, while the lender still assesses the sponsor behind the project.
You can test lender appetite and obtain an indicative structure before the development approval is final, but formal construction approval and drawdown normally depend on the lender's conditions being satisfied. Those conditions commonly include the approved development, final plans, the building contract or verified costings, a valuation and any cost report the lender requires. If you are still buying the site, treat the acquisition facility and the later construction facility as two connected decisions rather than assuming one automatically rolls into the other.
Do not assume a company borrower ring-fences the development from the people behind it. Development lenders commonly assess directors or controllers and may require personal or corporate guarantees, but the scope varies by lender and facility documents. Have your solicitor explain exactly who is guaranteeing what, whether any liability is capped, what other security is being given and what survives a partial discharge, refinance or default before you sign.
Not automatically. Capitalised interest is usually added to the development facility balance as it accrues, so the lender's release payment at settlement reduces a debt balance that already includes that interest. Do not subtract the same interest a second time in your settlement model unless the facility documents or settlement statement require a separate payment. Model the outstanding facility before and after each lot release instead.
A townhouse development finance broker arranges funding for small residential developments, which in practice means working across residential, specialist and private funding rather than one lender's product set. Most of the work is presenting a project the way a credit team reads it: costs, contingency, end value, cost to complete and the exit. Where the plan is to keep the dwellings rather than sell them, that exit is a refinance, and holding completed townhouses on a residual stock loan is the usual path.
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