Why Lenders Lend Less on a Specialised Commercial Property
Commercial Property Finance
Specialised commercial property · Valuation basis · Credit policy
Why can the same pub, motel, childcare centre or service station produce a much smaller loan than a standard warehouse? The answer is not a single APRA LVR cap. It is the interaction between the lender's credit policy, the valuation basis it accepts and the fallback market for the property. This guide separates those pieces and shows what to ask before you rely on the number.
Quick Answer
A specialised commercial property is built or fitted for a narrow use, so the pool of buyers and tenants is smaller if the lender ever has to recover its debt. There is no universal specialised-property LVR or APRA deposit rule in Australia. The lender decides its own maximum advance, while the dollars available also depend on the valuation figure it accepts. Before you sign or respond to a low offer, establish the valuation basis, whether the limit is credit policy or a valuation outcome, and the actual cash shortfall created by the accepted value.
Also called: specialised commercial property, specialised security, single-purpose property, purpose-built commercial property.
Before you rely on a specialised-property LVR or lender number, what should you ask?
Ask what value the lender accepted, what percentage it applied to that value, whether the limit is policy or valuation, and what dollar advance that produces. An indicative LVR is not useful until you know the base it is being applied to.
Some readers arrive before making an offer; others arrive after a bank has asked for much more cash than expected. The same diagnostic works at both points. A pub, motel, childcare centre or service station can have a purchase price, a value to its current occupier, an alternative-use value and, where a trading business is involved, a going-concern figure. If the lender is applying its percentage to a different figure from the one you budgeted from, a perfectly familiar headline LVR can still produce a very different loan.
Which five questions should you put to the lender or broker?
These questions separate the valuation, the credit policy and the transaction timing. Put them in writing and keep the answers with the file.
Ask, in writing
- Which valuation figure has the percentage been applied to? Ask for the exact basis, not simply “the valuation”. On a purpose-designed property, the report may contain more than one relevant figure.
- What percentage was applied, and what dollar advance does that produce? A headline LVR is not the cash available at settlement. Convert the accepted value into the actual proposed loan amount before you budget around it.
- Is the limit credit policy, a valuation outcome, or both? Credit policy belongs to that lender. The valuation belongs to the report. A different lender can change the first without necessarily changing the second.
- What marketing period and alternative-use assumptions sit behind the valuation? APS 220 allows a longer assumed marketing period for specialised or unusual property where professional valuers advise that it is appropriate.
- What would have to change for the answer to change? This exposes whether the obstacle is the asset, the valuation basis, the lease or licence, the financial information, supporting security, or simply that lender's appetite.
These are diagnostic questions, not a promise that a higher advance is available. A lender can keep the same position after every question is answered.
If you have not signed yet, what should you confirm before relying on an LVR?
Confirm the lender has appetite for the exact asset, location and ownership structure, and confirm the valuation basis it expects to use before you treat an indicative LVR as your deposit calculation. A percentage discussed before valuation is not the same thing as a final loan amount. If the contract will contain a finance condition, or you are considering going unconditional, have your solicitor or conveyancer explain the clause and its deadlines. Finance clauses and termination rights depend on the contract and jurisdiction, so this guide does not replace legal advice on whether you can exit a purchase.
What if the lender's number creates a cash shortfall before settlement?
Calculate the reduction in the loan, not just the difference between price and valuation, then run the valuation, lender-policy and contract questions in parallel. A valuation gap does not automatically become an equal cash gap because the lender is usually advancing only a percentage of the accepted value. Confirm the actual revised loan, ask which valuation basis caused it, test whether the policy position is lender-specific, and have your solicitor check the contract deadlines at the same time. The detailed settlement sequence sits in our valuation shortfall at settlement guide; this page owns the reason the loan moved, not the legal or settlement mechanics.
What is worth not doing?
Three things waste the most time. First, arguing with the valuer before establishing which valuation basis the lender actually used. Second, budgeting backwards from a percentage found online as though it were an Australian rule. Third, making a string of full applications before finding out whether the obstacle is asset appetite or a valuation issue that every lender is likely to see. Diagnose the constraint first; then decide whether a different lender, a different structure or more cash is the relevant lever.
What makes a commercial property specialised, and why does the label change what you can borrow?
A property is specialised when it was built for one use and cannot easily be re-let or resold to a different operator, so the lender's fallback is thinner. That is the whole of it. The label is not a category a regulator assigns and it is not a penalty. It is a description of how deep the market is beneath the building, and depth of market is what a lender is really pricing when it decides how much of the purchase it will fund.
The word itself causes trouble, because it carries several unrelated meanings in Australia and two of them turn up on finance applications.
What do lenders actually mean by a specialised property?
Lenders mean a building whose value is bound up with one particular use, so that removing the operator does not leave space another business could readily take. A pub is licensed premises with a cellar and a commercial kitchen. A childcare centre is fitted to a regulated floor area with approvals attached. A service station has tanks in the ground. A self storage facility is a grid of small lockable units. Strip out the operator and you are not left with a flexible shed you can lease to anyone; you are left with a building that suits a short list of buyers and needs money spent on it to suit anyone else. Compare that with a warehouse in an industrial estate, where the next tenant could be almost any business that needs a roof and a roller door. That difference in asset type is the whole mechanism, and everything else on this page follows from it.
Why does the word mean something else in the prudential standard?
The phrase means something different because "specialised lending" is a defined term in APS 112, the capital adequacy standard, and it does not mean a specialised building. In the prudential standard a specialised lending exposure is object finance, project finance or commodities finance, and the standard says in terms that such an exposure is not a property exposure. It is a corporate asset class that expressly excludes property. So when someone tells you a pub is treated as specialised lending and therefore attracts a higher capital charge, two separate things have been run together: an industry description of a building, and a regulatory category that begins by excluding buildings. In the security industry the same bare phrase means guarding, alarms and document shredding, which is the dominant everyday Australian usage; in ordinary finance talk "securities" means shares and bonds. Three meanings, one phrase, and only one of them is about your premises. Hold on to that distinction, because the next section turns on it.
Where do most buildings really sit on this scale?
Most buildings sit on a spectrum between flexible and narrow, not in one of two boxes. A suburban office suite and a standard industrial unit sit at the flexible end. A neighbourhood shop sits near them. A motel, a caravan park, a childcare centre or a licensed venue sit at the narrow end. Plenty of property sits in between, and mixed use assets can sit at both ends at once depending on which part of the title a lender is looking at. What decides where you land is not a label anyone applies to the file; it is how many credible buyers exist for the building as it stands. And thin markets behave in a way that matters here: commercial property changes hands rarely and slowly, and recorded sale prices lag the conditions they are meant to describe, which means a lender assessing a narrow-market asset is working with less evidence than it would have on a warehouse.
Basis: Australia's central bank, in published financial stability research on commercial real estate, describes transactions in the sector as infrequent and costly with long lead times, so that sale prices tend to lag actual conditions. Reserve Bank of Australia, Bulletin, September 2023, read at source 18 September 2026. General market commentary about the sector. It is not a statement about any individual property and it is not a lending rule. See also how commercial property loans work.Scroll the table sideways to see every column.
| Characteristic | Standard commercial security | Specialised commercial security |
|---|---|---|
| Who could occupy it next | A wide range of businesses, many industries, little adaptation needed | A short list of operators in one industry, often holding the right licence or approval |
| What the fit-out suits | General commercial use, readily reconfigured for a new tenant | One trading purpose, and converting it costs real money and time |
| How value is evidenced | Frequent comparable sales and lettings in the same location and class | Few comparables, often interstate, often older, sometimes trading-based rather than space-based |
| What the lender's fallback depends on | The property alone, since the space is the saleable thing | The property plus whether a replacement operator can be found for it |
| How long a sale is assumed to take | The shorter assumed marketing period a lender applies as standard | Potentially the longer assumed period, where professional valuers advise it is appropriate |
The tiers above are descriptive. Where your particular asset class sits, and what is specific to it, is the job of the asset class section below.
Does APRA actually require a lender to lend less on a specialised property?
No. APRA does not prescribe a lower borrower LVR simply because a commercial property is a pub, motel, childcare centre, service station or another specialised asset. For ADIs using APS 112, the standard determines regulatory capital treatment, not the maximum percentage a lender must offer a borrower.
That distinction matters because it changes what can move. APRA can make a higher-LVR exposure more capital-intensive for a bank without setting the bank's credit policy. The lender still decides whether it wants the asset, which valuation figure it will accept for its lending decision and how much exposure it is prepared to hold. A non-bank or private lender that is not an ADI is not directly subject to APS 112 or APS 220 at all, although it can still choose conservative policy or face its own funding-line requirements.
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| The claim you will find online | What the standard actually says |
|---|---|
| APRA classes a pub or a motel as specialised lending, so the bank must hold more capital | Specialised lending in APS 112 means object finance, project finance or commodities finance, and the same provision says such an exposure is not a property exposure |
| Specialised commercial property attracts a 150 per cent risk weight | 150 per cent is the risk weight for a non-standard exposure and it applies at every loan to valuation band, including the lowest. Non-standard turns on failing origination and valuation criteria, not on the building |
| The regulator caps the loan to valuation ratio on these assets | No prudential standard sets a maximum loan to valuation ratio for any borrower. The standards set capital a bank holds against an exposure, not what it may advance to you |
| There is an APRA table of maximum lending percentages by asset type | No such table appears in APS 112 or APS 220. Tables circulating online are somebody's inference presented as regulation |
| The valuer discounts a specialised property | The valuation guidance instructs the valuer to report both the occupant value and the alternative use value so the lender is fully informed. It instructs reporting, not a discount |
| A specialised property is valued with its trading business, so the contract price is the base | The default basis for a loan security valuation of owner occupied property, including property occupied by a related entity, is vacant possession unless the lender instructs otherwise |
What does the capital standard actually turn on?
For a commercial property exposure whose repayment depends primarily on property cash flows, APS 112 Table 3 uses the LVR band and whether the loan is standard or non-standard. For qualifying commercial property exposures that are not dependent on property cash flows, Table 4 also uses counterparty type. The building's use is not a separate risk-weight input in either table. That is the precise point: APS 112 can change the capital treatment as leverage, classification, repayment source or counterparty changes, but it does not contain a separate “pub”, “motel”, “childcare” or “service station” risk-weight row. APS 112 is also the standardised approach; APRA-approved ADIs using the internal ratings-based approach calculate credit risk capital under APS 113. None of that creates a universal specialised-property LVR for borrowers.
Do APRA's commercial-property rules apply to non-bank or private lenders?
Not automatically. APS 112 and APS 220 are prudential standards for authorised deposit-taking institutions within their scope, so a non-bank or private lender that is not an ADI does not inherit an APRA specialised-property LVR because no such LVR exists. A non-bank can still offer a lower advance on the same asset because of its own credit policy, investor mandate, funding line, concentration limits or view of the exit. The practical question is therefore not “which lender ignores APRA?” but “which lender has policy and funding appetite for this security, and what valuation basis will it use?”
Does "specialised lending" in the standard mean a specialised building?
"Specialised lending" in APS 112 does not mean a specialised building, and this is where the myth is manufactured. The standard defines a specialised lending exposure as one satisfying the definition of object finance, project finance or commodities finance, and the same provision says the exposure is not a property exposure. Object finance funds a specific physical asset such as a ship or an aircraft. Project finance looks primarily to the revenue of a single project. Commodities finance is short-term lending against reserves, inventories or receivables. Those are corporate lending shapes, and the definition begins by putting property outside them. So a pub, a motel or a childcare centre secured by real property is a commercial property exposure and is risk weighted as one. The regulatory word and the industry word are false friends, and almost every claim that "APRA classes it as specialised, so the bank must hold more capital" rests on mistaking one for the other.
Where does the 150 per cent figure actually come from?
The 150 per cent figure people quote is the risk weight for a non-standard loan. That is a classification about how the loan is written and assessed, not about what kind of building secures it. Where repayment depends primarily on the property's cash flows, a standard commercial property exposure carries a risk weight of 70 per cent at or below 60 per cent loan to valuation, 90 per cent from 60.01 to 80 per cent, and 110 per cent above 80 per cent. A non-standard exposure carries 150 per cent at every band, including the lowest one. Read that last point again, because it is the tell: if 150 per cent applied because of the building, it could not also apply to a loan at a very low ratio on the same building. It applies because the loan itself failed the origination and valuation criteria the standard sets, which is a question about paperwork, assessment and process, not about the cellar or the fuel tanks. Those criteria are specific and they are worth knowing, because they are the part of this you can act on. They require enforceable security including a right to possession and power of sale, a documented and verified assessment of the borrower's ability to repay that accounts for higher interest rates and all existing debt, a valuation done to the standard's requirements, information that is accurately documented and readily accessible, and, where repayment of a commercial property loan depends on the rental income the property generates, an assessment of the tenancy profile against the maturity of the loan. Where that serviceability assessment does not come out positive, the standard requires the loan to be classified as non-standard.
Is APRA changing any of this?
Not this part. APRA released a draft APS 112 for consultation on 29 June 2026, proposed to commence on 1 April 2027, and the commercial property risk weights in it are unchanged: 70, 90 and 110 per cent by loan to valuation band for a standard exposure, and 150 per cent for a non-standard exposure at every band. The draft also keeps the definition that puts specialised lending outside property exposures, so the myth is no better founded under the proposed rules than under the current ones. Submissions closed on 7 September 2026, and APRA has said it intends to finalise the credit risk capital changes in the second half of 2026 for a proposed effective date of 1 April 2027. Until a final standard is made, the APS 112 in force is the operative one.
One figure circulating out of that consultation does need care, because it is already being quoted loosely. The draft describes a 100 per cent risk weight for non-standard loans, and that figure sits in the residential property table, not the commercial one. Commercial property non-standard stays at 150 per cent. The reductions APRA has actually proposed sit elsewhere, in large domestic public infrastructure, high quality unrated corporate lending and residential development lending, and not one of them turns on whether a building was purpose built.
Source: APRA, consultation, Getting the balance right on financial resilience, Workstream 1: Credit risk capital, opened 29 June 2026, and the draft Prudential Standard APS 112, Attachment A Table 3 (commercial property dependent on property cash flows) and Table 2 (non-standard residential property), draft commencement 1 April 2027, read at source 18 September 2026. Submissions on the consultation closed 7 September 2026. A draft is not law. The standard in force is the one cited above. Nothing here is a forecast of what the final standard will say.So who sets your percentage?
A credit team, inside one lender, applies that lender's policy to the valuation, servicing, structure and security position in front of it. APRA's prudential standards tell an ADI how to measure and hold capital against exposures within their scope; they do not set a maximum borrower LVR. The lender's maximum for a specialised asset is therefore a policy decision, while the final loan amount can still be reduced by the valuation basis, servicing, documentation or conditions on the file. The useful conclusion is not that every number is negotiable. It is that you should identify which part of the number is policy and which part follows the asset or the borrower before deciding whether another lender is relevant. That is what a commercial property loan comparison should start with.
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| The question | What the standards actually say | What that means for your application |
|---|---|---|
| Does the building type itself set the APS 112 risk weight? | No. APS 112's commercial-property tables do not use a separate risk-weight row for pubs, motels, childcare centres or other building types | A lender can still price or cap those assets differently under its own credit policy |
| Does the loan to valuation band affect APS 112 capital treatment? | Yes, but the effect depends on the applicable commercial-property table. Table 3 uses LVR bands directly; Table 4 distinguishes exposures at or below 60 per cent and also uses counterparty type | Lower leverage can improve capital treatment in the relevant category, but it does not create a guaranteed pricing or approval outcome |
| Does how the loan is documented and assessed change it? | Yes. A standard or non-standard classification applies at every band, and non-standard turns on failing origination and valuation criteria | The quality and completeness of your file is a capital question for the lender, not just an administrative one |
| Does the standard set a maximum loan to valuation ratio for you? | No. The standards set capital held against exposures. They set no borrower limit at all | There is no regulatory ceiling to quote back at you, so a low offer is a position, not a rule |
| Who chooses the percentage you are offered? | The standards are silent. The choice sits in the lender's own credit policy | Different lenders will answer differently on the same building, so the market is worth testing |
There is one prudential rule that does bite. What does it actually say?
The rule that genuinely touches specialised property is not about risk weights at all. It is an instruction about how a lender must value its security, and it sits in APS 220, the credit risk management standard, rather than in the capital adequacy standard. It is the reason marketability carries so much weight in a specialised file, and almost nobody quotes the part of it that does the damage.
What does the assumption actually instruct?
APS 220, APRA's credit risk management standard, requires an ADI determining the fair value of security involving property to assume three things. That the property would be accessed in the near future. That the period for marketing it would be up to 12 months, although a longer period, up to a maximum of 24 months, may be adopted for specialised or unusual properties where professional valuers advise that this is appropriate. And that market conditions and asset values remain static over the marketing period. Those three limbs are widely quoted and they sound benign. A year is a long time; two years is longer; fine. The instruction only becomes sharp when you read the sentence that follows them, which is the limb that gets dropped every time the passage is summarised.
The marketing period a lender must assume
- Up to 12 months The standard marketing period assumed when a lender values its security involving property.APRA, Prudential Standard APS 220 Credit Risk Management, Attachment A paragraph 15, made as Banking (prudential standard) determination No. 14 of 2022 and registered as F2022L01576, commenced 1 January 2023, read at source 18 September 2026.
- Up to 24 months The longer period that may be adopted for specialised or unusual properties where professional valuers advise that this is appropriate.APRA, Prudential Standard APS 220 Credit Risk Management, Attachment A paragraph 15, made as Banking (prudential standard) determination No. 14 of 2022 and registered as F2022L01576, commenced 1 January 2023, read at source 18 September 2026.
A valuation assumption for prudential capital purposes. It is not a loan to valuation cap, it is not a lending policy, and it is not a statement that any particular property will take that long to sell.
Why is the retrospective wording the important part?
Because the standard requires marketing periods to be retrospective and assumed to have elapsed at the date of valuation, rather than incorporating improved future market conditions. Put plainly: an ADI cannot improve today's security value by assuming the market will recover during a long sale process. On a specialised or unusual property the assumed marketing period may extend to 24 months where professional valuers advise that this is appropriate. That is a real prudential valuation constraint for an ADI, but it is still not a borrower LVR cap and it does not mechanically calculate the lender's specialised-property percentage.
What is this assumption not?
It is not a rule about your loan. It governs how a bank measures the fair value of security it holds, for its own provisioning and capital purposes. It does not say a specialised property must be sold within two years, that yours would take that long, or that anyone must lend you less because of it. It is also worth knowing that this assumption has been lifted, stripped of its qualifiers, and recycled online as a supposed mandatory liquidation rule complete with an invented table of maximum lending percentages by asset type. There is no such rule and no such table in the standard. If you have been shown one, you have been shown someone's inference dressed as a regulation. The accurate reading is narrower and more useful, and it connects directly to forced sale value and to the way accommodation assets are assessed by type and location.
What is the valuer actually instructed to do on a purpose-built property?
On a property designed for one occupier the valuer is not instructed to discount anything. The professional guidance instructs the valuer to report two values, so the lender is fully informed, and to leave the decision to the lender. That is a materially different thing from a haircut, and it explains why arguing with a valuer about a specialised property usually goes nowhere: the valuer has not taken anything away.
The guidance goes further than that, and this is the part almost nobody quotes. It tells valuers that lending for mortgage security is a commercial decision of the lender, and that it is not generally appropriate for a valuer to recommend a maximum or minimum loan percentage or amount. The profession that produces the number the whole argument turns on has said, in writing, that setting the percentage is not its job. That is the clearest available confirmation of what the rest of this page argues from the prudential side.
Which two values does a valuer report on a purpose-built property?
Where the property is purpose designed for an occupier and is not suitable to an alternative occupant, the guidance is that both the value for that occupant and the alternative use value should be reported, so that the lender is fully informed. Two numbers, side by side, for the same building. One answers what it is worth to the operator it was built for. The other answers what it is worth to somebody who would have to change it. On a highly specific asset the gap between those two figures can be wide, and the valuer's job ends at reporting both. It is the lender that decides which figure to work from. That is why the useful question on a specialised file is never "what did it value at" but "which of the two numbers did the lender use", a distinction explored further in what a commercial valuation actually tests.
Source: Australian Property Institute, with the Property Institute of New Zealand and the New Zealand Institute of Valuers, ANZVGP 112 Valuations for Mortgage and Loan Security Purposes, sections 4.0, 5.1, 5.3, 5.5, 5.6 and 5.8, published 18 December 2024 and effective 1 January 2025, replacing the version withdrawn 31 December 2024, read at source 18 September 2026. This is guidance to valuers on what to report. It instructs reporting, not a discount, and it sets no lending policy. The prudential credit risk standard separately requires a lender relying on valuations to have them prepared to the standards and practices of the relevant professional body, naming the Australian Property Institute as its example.Why is an owner-occupied property valued empty?
Because the default basis for a loan security valuation of owner-occupied property is vacant possession, unless the lender instructs otherwise, and an estimated marketing period should be provided with it. The guidance treats property occupied by a related entity the same way, which catches the very common structure where the operating company leases the premises from a trust or a second company the same people control. Putting your own entity in as the tenant does not create a tenanted investment for valuation purposes. The consequence is arithmetic rather than philosophy: the figure a contract of sale names may include a trading business, plant and goodwill, while the figure the lender applies its percentage to may be the real property standing empty. Both numbers can be correct at once. It is also worth knowing that in Australia chattels are not normally included in a valuation of real property for mortgage and loan security purposes, which is part of why plant and equipment on a trading asset so often has to be identified and funded separately from the premises.
What if the valuation has come in below the contract price?
First work out whether the valuation and the contract are measuring the same thing. A contract for a specialised asset can include real property, a trading business, plant, licences and goodwill, while the lender may size its property loan from a vacant-possession, alternative-use or other accepted security value. Both numbers can therefore be correct at once. There is a specific thing to ask for here. The valuation guidance says the report should comment on any difference between the valuer's figure and the sale price, so where a gap exists the explanation should already be in the document you have paid for. Ask for that comment and for the basis the report was prepared on, then ask the lender which figure it used. If that reduces the proposed loan, calculate the actual loan reduction rather than assuming the whole valuation difference becomes cash. The settlement mechanics and options sit in the valuation shortfall guide.
Can you challenge a low commercial valuation or get a second valuation?
You can ask for a valuation review, but a second report is useful only if it addresses evidence the first valuation missed or if the lender is willing to rely on a new instruction. The Australian Property Institute's mortgage-security guidance says valuation instructions are ideally received from the lender, and a borrower-instructed mortgage valuation cannot simply be assumed to be usable by another lender. Before paying for another report, ask the lender what review process it will accept and what evidence the valuer would need to reconsider. Useful evidence can include an error in the property description, a lease, licence or planning approval that was not supplied, relevant recent transactions, or evidence that the sale contract bundles property with a trading business, plant or goodwill. A second valuer is much less likely to change the lending result where the real constraint is lender policy, a genuine alternative-use value, serviceability or an approval problem. The dedicated valuation shortfall guide owns the settlement options if the review does not close the gap.
Source: Australian Property Institute, ANZVGP 112, sections 4.0 to 4.2, effective 1 January 2025. The guidance says instructions should identify the task and relevant documents, are ideally received from the lender, and borrower-instructed mortgage valuations require further steps before another lender can rely on them.How do the two instruments join up?
The valuer can give the lender more than one relevant value and an estimated marketing period. For an ADI, APS 220 adds a conservative security-valuation assumption; the lender then applies its own credit policy to that evidence. The lower advance is therefore not produced by one regulatory formula. It is the lender's policy response to the valuation, marketability, servicing, structure and the rest of the file.
That is the whole mechanism, and it is worth sitting with, because it is not how the topic is usually described. There is no discount and no penalty anywhere in the chain. There is a reporting instruction to the valuer, a measurement assumption imposed on the lender, and a commercial decision the lender then makes with both in front of it. Understanding it that way changes what you can usefully do, which is the subject of the next two sections. Where a trading business genuinely comes with the property, the going concern valuation question and the going concern definition are the next things to get straight, and the general mechanics of a security valuation sit alongside them.
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| Basis | The question it answers | When it is used | What a lender does with it |
|---|---|---|---|
| Market value | What would the property exchange for between willing parties on the evidence available | The general basis for a loan security valuation of real property | Treats it as the reference point, then asks what the marketing period assumption does to it |
| Vacant possession value | What is the real property worth with no occupier and no trading business in it | The default basis for owner-occupied property, including property occupied by a related entity, unless the lender instructs otherwise | Commonly the figure the percentage is applied to on an owner-operated asset |
| Going concern value | What are the property and the operating business worth together, including plant, licences and goodwill | Where the asset is genuinely sold and assessed as a trading entity rather than as bare premises | May accept it, may split it, and will usually want the property component identified separately |
| Alternative use value | What is the building worth to an occupier other than the one it was designed for | Reported alongside the occupant value where the property is purpose designed and unsuitable to an alternative occupant | Reads it as the floor beneath the fallback, which is what a narrow market really costs |
What LVR can you get on a specialised commercial property, and who decides it?
There is no single market-wide LVR for specialised commercial property. The answer is the percentage a particular lender is willing to apply to the valuation base it accepts for your asset and structure. Published ranges can describe one lender's policy or a broker's market experience, but they are not an Australian rule and they are not interchangeable across pubs, motels, childcare centres, service stations or other narrow-market assets.
Why does the same building get different answers?
Because the valuation evidence can be shared while the lending judgement is not. Different lenders have different asset appetite, concentration limits, funding costs, policy settings and experience with the operator market. An ADI also has prudential capital rules to satisfy; a non-bank may instead be constrained by its own warehouse or investor mandate. One lender may therefore cap an asset that another will consider more comfortably, even when both have seen the same report. The useful comparison is not “which lender has the highest advertised LVR?” but “which lender accepts this asset, on which valuation basis, with which supporting conditions?”
When can a different lender change the answer, and when probably not?
A different lender is most likely to change the result when the constraint is credit policy, asset appetite, concentration or the way that lender treats the structure. It is less likely to solve a genuine security defect or a valuation issue that every lender will see. That distinction is why the first question after a low offer or decline should be “what exactly caused the limit?” If the answer is policy, another desk may be relevant. If the answer is a missing approval, weak tenure, contamination, an untransferable licence, unsupported servicing or a valuation base that reflects the asset's real alternative-use market, changing lender without changing the file can simply reproduce the same answer.
What is a credit team actually weighing?
A credit team is weighing the fallback in concrete terms: if this stops paying in year three, who buys this building, how long does that take, and what does the file say about it today. The question is not whether this is a good business. So they weigh the depth of the operator market for the asset, whether licences and approvals transfer with a sale or have to be re-earned, whether the property has any use at all without the current trade, whether the borrower could keep servicing from elsewhere if trading dipped, and how much of the total exposure would rest on this one asset. A stronger answer on any of those makes the same percentage easier to justify internally. It also explains why a file that reads well can beat a file with a better asset. Some of this is covered from the security side in our guide to property security for a business loan.
What gets a specialised deal declined?
A specialised deal can be declined on security type alone, but many live files also fail because the rest of the submission does not let a credit team describe the fallback clearly. Common problems include: trading records that do not reconcile, a tenure or licence position the borrower cannot explain, no answer on who else could operate the premises, or an exposure concentrated entirely in one narrow-market asset with nothing beside it. Notice that most of those are fixable before an application goes anywhere, and none of them are fixed by arguing about the valuation. That is the practical inversion worth taking from this page: the lever is your file and your structure, not the percentage. You can test where a file sits before committing to anything by starting with an eligibility check.
From our broking, indicative, as at September 2026
Basis. What follows is drawn from commercial property acquisition and refinance files Switchboard has placed with bank, non-bank and specialist funders on narrow-market assets, observed over recent years and current as at September 2026. It is directional, not a schedule. No numeric advance, deposit or approval-time bands have been released for publication, so none appear in this block and none appear in any table on this page. The only percentages and dollar figures anywhere on this page are the prudential capital risk weights, which are quoted from the standards and are not lending limits, and one clearly labelled arithmetic illustration that is not a lender policy figure. A blank is better than a borrowed number.
On timing, as direction rather than duration. In the specialised-property files we handle, the valuation step is often the part that adds time compared with a standard commercial security. Narrow asset classes can require a specialist valuer, a broader evidence search and additional reporting on alternative use or marketability. Treat that as a planning risk rather than a promised delay: confirm the valuer's availability and the lender's required report before you set a finance timetable.
What we most often see stop a specialised file, roughly in order of frequency.
- Trading records that do not reconcile. The profit and loss, the activity statements and the bank statements tell three different stories, and the file stops there whatever the asset is.
- A tenure or licence position the borrower cannot describe accurately, which reads to a credit team as a risk nobody has measured.
- No answer to the question of who else could operate the premises. Silence there is read as no alternative use.
- The whole exposure resting on one narrow-market asset, with no supporting security and no fallback servicing.
- A budget built backwards from a percentage found online, applied to the wrong base, so the deposit is short before the file is even assessed.
What a credit team asks for that borrowers do not expect. A view on the replacement operator, not just the current one. Evidence that licences and approvals travel with a sale. The property component identified separately where a trading business comes with it. And a plausible account of servicing that does not depend on the premises trading at their best.
Indicative only, based on files we have placed, and qualitative by choice. It is not a quote, not an offer, not a statement of approval likelihood, and not a timeframe anyone is committing to. Actual terms and timing depend on lender policy and your circumstances at the time of application. Not financial advice.
What actually lifts what a lender will advance on a specialised commercial property?
Almost everything that lifts the figure works by narrowing the lender's fallback problem, not by arguing about the valuation. Once you see it that way the list of levers becomes short, concrete and mostly available before you sign anything.
How do you narrow the lender's fallback problem?
Additional or supporting security is the bluntest lever. Adding a second property, often residential and usually with a far deeper resale market, reduces how much of the exposure rests on the narrow asset, which is the problem the lender is trying to solve. There is a prudential asymmetry here worth knowing, because it runs the way that helps you. Under the capital standard, where a residential property exposure is secured by both residential and commercial property, the lender must apply a 40 per cent haircut to the commercial property's value when calculating the ratio. The standard sets no equivalent haircut on residential property used to support a commercial exposure. It is not free, because that property becomes exposed to the debt, and where it belongs to a family member or a third party the consequences for them are real, which is why using someone else's property as security and putting the family home up as security both deserve their own conversation first. Vendor finance can cover part of the gap where the seller is motivated and prepared to carry some of the price, an arrangement examined in vendor finance on a carry-back sale. Second-ranking debt is the last resort of the three and changes the cost of the whole structure, so read a second mortgage across two properties before treating it as a simple top-up.
What if you cannot fund the larger deposit in cash?
The gap can sometimes be solved with better-quality supporting security, seller funding or a different lender structure, but each option changes the risk rather than making the gap disappear. Additional property exposes that property to the debt. Vendor finance leaves part of the purchase price owing to the seller. Second-ranking debt can make the overall structure materially more expensive. The right comparison is therefore total cash required, total security exposed, total cost and the refinance or repayment path, not simply whether the transaction can be made to settle.
What do the lease and the licence do to the answer?
Tenure and lease structure can change the answer more than the building does, because a freehold interest, a freehold going concern and a leasehold interest are three different assets with three different fallbacks, as set out in freehold going concern against leasehold. The lease also carries a prudential dimension most buyers never hear about: where repayment of a commercial property loan depends on rental income, the capital standard requires the lender to assess the tenancy profile against the maturity of the loan, and the valuation guidance notes that a lender may ask for a vacant possession figure where a lease is close to expiry and that figure would differ significantly from the leased value. A lease that runs out well inside the loan term is therefore a documented problem on both sides of the file, not a matter of taste. Trading history and licence transferability is the lever most often underplayed, and no page on this site owns it outright, so it is worth saying properly here. A long, verifiable trading record does not change the valuation, but it substantially changes how a credit team describes the fallback, because a property that demonstrably trades can be handed to another operator rather than repurposed. Where the licence or approval attaches to the premises and transfers with a sale, the replacement-operator market is real and a credit team can point to it. Where the approval attaches to the person and has to be re-earned by whoever comes next, the fallback shrinks to the bricks, and that shows up in the offer. Where to get that answered depends on the asset, and it is rarely the selling agent. Childcare service approvals sit with the state regulatory authority under the national quality framework, with ACECQA publishing the national process. Liquor licences sit with the state or territory liquor authority. Service station environmental authorisations and underground storage tank obligations sit with the state environment regulator. Caravan park registration usually sits with the local council or a state authority. Ask the body that issues the approval, in writing, early, because it is often the single strongest thing in an otherwise ordinary file, and because the answer differs by state.
Does owner-occupied, investment or related-party occupancy change the valuation and LVR?
Yes, but not because there is a universal owner-occupier or investor percentage. For mortgage-security valuation, the Australian Property Institute says owner-occupied property, including property occupied by a related entity, should be valued on a vacant-possession basis unless the lender instructs otherwise. That means putting your operating company into a building owned by your trust or another related company does not automatically turn the security into the same thing as an arm's-length tenanted investment. A genuine third-party investment gives the lender a lease and tenant covenant to assess instead. Where repayment depends on property cash flows, APS 112 requires an ADI to assess the tenancy profile relative to loan maturity, and APG 112 notes that weighted average lease expiry can be relevant on multi-tenanted property. In practice the owner-operator file is therefore read through business trading and vacant-possession fallback, while the investment file is read through the lease, tenant covenant, expiry profile and reletting risk. The detailed tenant mechanics belong in how your tenant affects commercial-property LVR, and the broader structure comparison sits in passive versus owner-operated commercial property.
Sources: Australian Property Institute, ANZVGP 112, section 5.3; and APRA, APS 112 with APG 112, read 18 September 2026. Occupancy is one input to the valuation and credit story; APS 112's formal property-cash-flow classifications have their own tests and should not be inferred from the label owner-occupied or investment alone.What happens if the tenant leaves, trading weakens or you refinance later?
The original LVR does not automatically reset every time the property's circumstances change, but the finance risk can change immediately and a refinance can bring the whole file back under current valuation and credit policy. For an ADI calculating regulatory LVR under APS 112, the property value at origination is generally maintained unless an updated valuation is obtained for a new loan application, an event indicates a likely permanent reduction in value, or qualifying changes unequivocally increase value and are confirmed by an updated valuation. Separately, your loan agreement may contain review, reporting or covenant obligations, so a tenant departure or trading deterioration can matter before the next refinance even where the regulatory LVR number itself has not been recalculated. At refinance, expect the lender to look again at current value, current tenancy or trading, servicing, approvals and its current appetite for the asset. This is why a specialised property that was comfortably financed five years ago can still produce a different answer at exit.
Source: APRA, APS 112 Attachment A, property valuation and LVR requirements, read 18 September 2026. Facility review rights and covenants depend on the actual loan documents, so the contract with the lender controls what happens between origination and refinance.Scroll the table sideways to see every column.
| Lever | How it narrows the lender's fallback problem | Where it stops helping |
|---|---|---|
| Additional or supporting security | Reduces how much of the exposure rests on the narrow asset, usually by adding a property with a deeper resale market | Where the added property is itself narrow market, already heavily encumbered, or belongs to a third party who has not understood what they are taking on |
| Vendor finance | Covers part of the gap where the seller is prepared to carry some of the price, so less of the purchase has to come from the senior lender | Where the senior lender will not permit it, or where the carry back terms are not disclosed to it |
| Second ranking debt | Closes a residual gap without disturbing the first mortgage | Where the cost of the whole structure has not been tested first, since it changes servicing rather than just the deposit |
| Tenure and lease structure | A freehold interest, a freehold going concern and a leasehold interest are three different assets with three different fallbacks | Where the interest actually being bought is not the one the buyer assumed, which is a due diligence problem before it is a finance one |
| Trading history and licence transferability | A property that demonstrably trades, with approvals that travel with a sale, gives a credit team a real replacement operator market to point at | Where the approval attaches to the person rather than to the premises and has to be re-earned by whoever comes next, so the fallback shrinks to the bricks |
| Owner operator standing | Brings a verifiable trading record and an obvious reason for the property to keep earning | Where the buyer is a passive investor, in which case the lease, the tenant covenant and what happens at expiry become the whole assessment instead |
What does a file that answers the fallback question actually contain?
A specialised file is strong when a credit team can describe the fallback without having to ask you anything. In practice that means reconciled trading figures, a tenure and licence position stated in writing, an answer on who else could run the premises, and a servicing story that does not depend on the property trading at its best.
Assembled before an application goes anywhere, that is the list.
- Trading figures that reconcile across the profit and loss, the activity statements and the bank statements, for the period the lender asks for.
- The contract, with a plain statement of what is being bought: the real property alone, the property together with the business, or a leasehold interest.
- The lease, where there is one, with term, options, review mechanism and expiry set out rather than left in the document for someone else to find.
- The licence or approval, and written confirmation of whether it attaches to the premises and transfers on a sale, or attaches to the operator and has to be re-earned.
- An answer, in a sentence, to the question of who else could run these premises, and some evidence that such operators exist and transact.
- Any supporting security, with its own position stated, including existing debt against it and whose name it is in.
- A servicing position that survives a dip in trade, whether that comes from other income, other entities or a buffer.
Several of those documents have a second destination people do not expect. The valuation guidance says that documentation relevant to the task should go to the valuer with the instruction, naming lease agreements, licences, planning consents, financial statements and plant and equipment schedules. The same paperwork that answers the credit team's fallback question is the paperwork that lets a valuer report properly rather than qualify heavily, so assembling it once does two jobs.
Every item there is something a credit team will otherwise have to ask for, and each round of asking costs time you may not have under a finance clause. The file is the part of this you control. The percentage is not.
Where does your asset type actually sit, and what is specific to it?
What is general is the mechanism set out above, in the sections on the standards, the prudential assumption and the valuer's instruction. What is specific is the fallback market for your asset class, and that differs enough between classes to need its own page. This section answers the question once at the level of principle and then routes you to the page that owns your asset.
What is general and what is specific?
General: APRA does not set a lower borrower LVR by commercial building type; APS 112 capital treatment depends on the applicable exposure category and inputs such as LVR, standard/non-standard classification, repayment dependence and, in Table 4, counterparty type; APS 220 governs security-valuation assumptions for ADIs; valuation guidance can require alternative-use information on a purpose-designed property; and the lender chooses its credit policy. Specific: the depth of the operator market, lease and licence transferability, environmental or planning issues, trading history, location and the lender's current appetite. Those asset-specific questions belong in the linked guides below.
Which asset classes have rules of their own?
Most asset classes have rules of their own, in the practical sense that each has a different operator market, approval stack and alternative-use problem. On a pub or hotel, the lender may need to understand whether the purchase is freehold, leasehold or a going concern, the trading record, liquor or gaming rights where relevant, and the depth of replacement operators. On childcare, approvals, enrolment or occupancy, operator standing and the lease can dominate. On a service station, environmental history, underground infrastructure and alternative use can matter as much as current trade. Caravan and holiday parks bring tenure, site mix, licences or registrations and trading records. Self storage brings occupancy, stabilisation and the depth of the operator market. Medical property can be highly lease- and tenant-covenant driven, while a car wash or heavily fitted manufacturing site raises questions about plant, approvals and how much of the improvement has value to the next user. Those are not universal lender rules or fixed LVR deductions. They are the asset-specific facts that determine how credible the fallback is, which is why the linked asset pages below own the detail rather than this pillar pretending one table can price every property.
Find your asset class
- Pubs and hotelsPub and hotel finance, and leasehold against freehold on a pub
- MotelsMotel finance
- Caravan and holiday parksCaravan park finance
- Childcare centresChildcare centre finance checklist
- Self storageSelf storage facility finance
- Student accommodationStudent accommodation investment finance
- Accommodation assets generally, including deposit and loan to valuation by asset type and locationAccommodation deposit and LVR by asset type and location
- Industrial and warehouseIndustrial and warehouse commercial property finance
- Mixed use, where the security splitsMixed use property loans
- Vacant, with no tenant and no incomeVacant commercial property finance
- Contaminated or environmentally impairedContamination found on the security property
This page is the general mechanism. Where an asset class, a headline ratio or a valuation under contract has its own page on this site, that page owns the specifics and this one owns the reasoning behind them. If your asset class is not listed, and service stations, medical and consulting suites, gyms and fitness premises, function centres, licensed clubs, car washes, cold storage, veterinary clinics, funeral homes and purpose built manufacturing premises all sit in the same shape, the mechanism set out above still applies to it, and the general commercial property lending route is the place to start.
What is different if the security is residential rather than commercial?
Everything on this page describes commercial property security. Residential lending runs a separate category, usually called non-standard security, which covers things like very small apartments, company title, serviced apartments and a handful of other title and building types. It operates on different rules, different assessment criteria and different documentation from the commercial treatment described above, and the two should not be reasoned across.
If the security you are discussing is residential, that category is where the answer lives rather than here. The nearest starting point on this site is our one doc home loan page.
Frequently asked questions
There is no universal specialised-property LVR in Australia. APRA does not prescribe one. Each lender decides the maximum advance it is prepared to make and the valuation basis it will accept, so a published percentage is a lender policy or an indicative market range, not a regulatory limit. Ask for the exact accepted value, percentage and dollar advance on your file.
A specialised commercial property is one built or fitted out for a single use, so it cannot easily be re-let or resold to a different kind of operator. Pubs, motels, childcare centres, service stations, self storage and caravan parks are the usual examples. The label matters because it narrows the pool of buyers and tenants who could take the property on if the loan ever had to be repaid from a sale, and that pool is what the lender is really assessing when it sets your loan to valuation ratio. It is a description of market depth, not a category any regulator assigns.
Often, but there is no fixed Australian deposit rule. A lower maximum advance or a lower accepted valuation base increases the cash or supporting security needed to complete the purchase. Calculate the loan against the lender's accepted value rather than budgeting from a generic percentage or the contract price alone.
No. APS 112 does not contain a separate borrower LVR cap by commercial property type. For standardised ADIs, the commercial-property capital treatment depends on the applicable exposure table and inputs such as LVR, standard or non-standard classification, repayment dependence and, in Table 4, counterparty type. The lender's specialised-property maximum is credit policy, not an APRA-mandated LVR.
Not automatically. APS 112 and APS 220 are prudential standards for authorised deposit-taking institutions within their scope. A non-bank or private lender that is not an ADI can still lend conservatively against a specialised asset because of its own credit policy, funding line, investor mandate or view of the exit, but that is not an APRA specialised-property LVR.
Not the ones this page turns on. APRA opened a consultation on 29 June 2026 proposing targeted changes to credit risk capital, with a draft APS 112 proposed to commence on 1 April 2027 and submissions closing on 7 September 2026. In that draft the commercial property risk weights are unchanged, at 70, 90 and 110 per cent by loan to valuation band for a standard exposure and 150 per cent for a non-standard exposure at every band, and the definition that puts specialised lending outside property exposures is also unchanged. The 100 per cent non-standard figure being quoted from the consultation sits in the residential property table, not the commercial one. The reductions APRA proposed apply to infrastructure, unrated corporate and residential development lending.
No. The Australian Property Institute guidance says lending for mortgage security is a commercial decision of the lender and that it is generally not appropriate for a valuer to recommend a maximum or minimum loan percentage or amount. The valuer reports the relevant values and risks; the lender decides which figure it will use and what percentage it will apply.
Usually the more useful question is which valuation figure the lender accepted. On a purpose-designed property the valuer may report the value to the current occupier and an alternative-use value so the lender is fully informed. A lender can then apply its own policy percentage to the figure it accepts, which means two offers with the same headline LVR can still produce different loan amounts.
First check whether the contract price and the valuation are measuring the same bundle. A contract can include real property, a trading business, plant, licences and goodwill, while the lender may size the property loan from vacant-possession, alternative-use or another accepted security value. Work out the actual reduction in the proposed loan before treating the whole valuation difference as a cash shortfall.
For the purpose of valuing its own security, a bank must assume under APRA's credit risk management standard, APS 220, a marketing period of up to 12 months, and may adopt up to a maximum of 24 months for specialised or unusual properties where professional valuers advise that is appropriate. It must also assume market conditions and asset values stay static across that period, and that the period has already elapsed at the date of valuation. That is a valuation assumption for prudential capital purposes. It is not a loan to valuation cap, it is not lending policy, and it is not a prediction that any particular property will take that long to sell.
Vacant possession value is the real property assessed without the current occupier or trading business. Going concern value can include the property and the operating business as a combined trading asset where that is the relevant valuation basis. Which figure matters to the loan depends on the lender's instructions, the asset and the structure being financed.
Sometimes, but first diagnose what created the limit. If the constraint is that lender's credit policy or appetite, another lender may hold a different position. If the constraint is the accepted valuation base, a missing approval, weak tenure or another security issue, changing lenders without changing the file may reproduce the same result. Ask what would have to change for the answer to change.
It can improve lender appetite and the way a credit team views the fallback, but it does not automatically change the property valuation. A long, reconciled trading record, transferable approvals and a clear operator market can make the file easier to understand and can affect which lenders will consider it and on what terms.
Sometimes. A second property with a deeper resale market can reduce how much of the lender's exposure rests on the specialised asset. It also exposes that second property to the debt. Whether it helps depends on its value, existing debt, ownership and the lender's policy, so compare the total security at risk rather than treating extra property as a free substitute for cash.
Possibly, where the first result was driven by lender policy, asset appetite or concentration. A different lender is less likely to fix a genuine security defect, unsupported servicing or a valuation issue that follows the asset. Before making another full application, identify whether the decline was caused by policy, valuation, documentation, servicing or the property itself so the next approach is targeted rather than repetitive.
The clean way to read a specialised-property loan is to separate regulation, valuation and credit policy. APS 112 does not prescribe a lower borrower LVR by commercial building type. For ADIs within its scope, APS 220 imposes conservative security-valuation assumptions, including a marketing period of up to 12 months and, where professional valuers advise it is appropriate, up to 24 months for specialised or unusual property. Separately, valuation guidance can require both occupant and alternative-use information on a purpose-designed asset and says the lending decision belongs to the lender. The lender then applies its own policy to those inputs, alongside servicing, structure and documentation. That is why the same headline LVR can produce different dollars on different valuation bases, and why a different lender can change a policy result without necessarily changing an underlying security problem.
Key takeaway: no rule sets your number, so the levers that work are the ones that narrow the lender's fallback problem, and the desks you take the file to.
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