The Three Numbers That Decide Your Development Finance Approval
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The Three Numbers That Decide Your Development Finance Approval
Development finance approvals are not decided by enthusiasm or a good story. They are decided by three numbers: gross realisation value, total development cost, and the residual margin left between them. This is how an assessor reads each one, and what makes a file pass.
Quick Answer
A development finance approval rests on three numbers: gross realisation value, total development cost, and the residual project margin left between them. Lenders size the whole facility from that feasibility maths before anything else, which is why strong files lead with the numbers. Our development finance page covers the facility itself.
What Is the Three Numbers Test?
From the underwriter's seat, the three numbers test is the first pass on any development file: what the finished project should sell for, what it costs to deliver, and how much margin is left between the two. Every other part of the assessment, the security position, the builder review, the drawdown schedule, hangs off those three figures, and an assessor reaches for them before reading anything else in the pack. If the numbers do not hold, the rest of the file rarely gets read closely, no matter how polished the cover note or how long the track record behind it.
This article stays inside the assessor's calculation. If you want the stage-by-stage mechanics of how a facility is documented and drawn, our primer on how development finance works covers that ground. Here, the focus is narrower: the three figures that decide whether the facility exists at all, and how each one is tested on a development finance application.
Numbers One and Two: Gross Realisation Value and Total Development Cost
The first two numbers are the inputs: gross realisation value, the end-value line, is what the completed project should sell for across every unit or lot, and total development cost, every dollar to practical completion, is what it takes to get there. Both are tested independently, and neither is taken from the developer's own spreadsheet at face value.
From the underwriter's seat, GRV is read net of GST and selling costs, and it comes from an independent valuation rather than an agent's appraisal. Valuers working to the standards of the Australian Property Institute assess the end product on comparable evidence, and the gap between an optimistic appraisal and a formal valuation is one of the most common places a file loses its margin. The gross realisation value figure that survives that process is the one the facility is sized against.
Total development cost gets the same treatment on the other side of the ledger. Lenders typically want the build line supported by a quantity surveyor report rather than the builder's quote alone, and the full TDC includes land, construction, professional fees, council contributions, interest during the build, contingency and selling costs. Files commonly stall because two or three of those lines are missing, which inflates the apparent margin. Assessors also watch the land-to-GRV ratio: where the site purchase consumes an outsized share of the end value, the project is usually carrying too much in the land for the margin to survive.
Number Three: Residual Project Margin, and the Hurt Money Behind It
The third number is the verdict: residual project margin, typically targeted around 15 to 20 percent of cost, indicative and varies by lender, is the buffer left in the project after every dollar of TDC is paid from the GRV. It is the lender's protection against cost overruns, slower sales and softer end values, which is why it is tested on conservative inputs rather than best-case ones.
Sitting behind the margin is hurt money, the developer's own cash equity committed to the project ahead of the lender's funds. A project can show a healthy margin on paper and still struggle if the developer has almost nothing of their own in the deal. Where the equity is thin, some files are restructured rather than declined: mezzanine finance can top up the funding stack at a price, and private lending can carry projects that sit outside bank-style appetite altogether, with the margin doing more of the work.
Read side by side, the same three numbers separate a file a lender can size from one that gets repriced or sent back for rework. This is how an assessor reads each line on the way to a verdict.
How the Three Numbers Set the Facility
Once the three numbers hold up, they set the facility's shape: lenders typically cap the loan against both TDC and GRV, whichever bites first, and release funds through staged drawdowns as verified progress claims come in. The approval is, in effect, the lender agreeing that the feasibility maths survives their stress points, so the stronger and cleaner the three numbers arrive, the less negotiation the rest of the file needs.
From the underwriter's seat, the same test also explains who funds what. Major banks tend to want the most conservative version of all three numbers, often with presales supporting the GRV line. Non-bank lenders and private funders underwrite the same three figures with more flexibility on how the end value is evidenced, which is why projects without a presales book can still fund, a route we unpack in our post on no-presales development finance. The broader property-secured options around a development sit in our Property Lending Hub.
Development finance approval is the three numbers test passed in writing. Gross realisation value sets the ceiling, total development cost sets the floor, and the residual project margin between them decides whether the project carries enough buffer for a lender to fund it. Files that arrive with a valuer-backed GRV, a QS-supported TDC and genuine hurt money behind the margin get sized quickly. Files built on appraisals and missing cost lines get repriced, restructured or declined.
Key takeaway: Run the three numbers test on your own project before a lender does, and lead your file with the numbers, not the story.Frequently Asked Questions
Property development finance in Australia works as a staged facility: the lender approves a total limit based on the project's feasibility numbers, then releases funds through staged drawdowns as construction milestones are verified. The approval itself is decided by gross realisation value, total development cost and the residual margin between them. Our guide to how development finance works walks through the full stage-by-stage mechanics.
Gross realisation value is the total end value of a completed development across every unit or lot, typically assessed net of GST and selling costs. Lenders treat gross realisation value as the end-value line that caps how large the facility can be, and it is set by independent valuation rather than the developer's own sales estimate.
The profit margin lenders want on a development project is a residual project margin typically targeted around 15 to 20 percent of total development cost, although the target is indicative and varies by lender and project type. The margin is the lender's buffer against cost overruns and softer end values. Where it runs thin, files are sometimes restructured with mezzanine finance or additional developer equity.
Hurt money is the developer's own cash equity committed to the project ahead of the lender's funds, usually absorbed into the land purchase and early costs before the first of the staged drawdowns. Lenders read hurt money as proof the developer carries real risk alongside them, and a file with little or none of it faces a harder approval path at almost any margin.
Development finance without presales is available, mainly through non-bank lenders and private funders who underwrite to the project's numbers rather than a presales quota. The three numbers test matters even more in that lane, because the margin and the end values carry the file on their own. Our post on no-presales development finance covers that funding route in detail.
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