Who Pays to Hold a Development Site Before You Build?
Holding Costs on a Development Site | Switchboard Finance
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Holding Costs · Caveat · Development Site
Who Pays to Hold a Development Site Before You Build?
You have settled the block and lodged the plans, but the approval is months away and the costs have already started. Council rates, land tax, insurance and interest run on the land whether or not you build. Here is who carries that cost, and how owner-builders fund it.
Quick Answer
Holding a development site before you build means carrying its costs, council rates, land tax, interest and insurance, while approvals land. Some owner-builders fund that carry with short-term private funding such as a caveat loan, repaid once a construction facility or a sale takes over.
What does it cost to hold a development site before you build?
Holding a development site costs you money every month it sits undeveloped, mainly council rates, land tax, insurance, and the interest on any debt secured against the block. None of those stop while you wait for a development approval, and none of them are covered by a standard construction loan, because that finance only switches on once you are actually building.
In practice, here is where it bites. A self-employed builder settles a block, lodges plans, and then learns the approval will take months. The land is bought, the drawings are paid for, and the meter is running, but there is no building to fund yet and no income from the dirt. That gap, the carry, is the part first-time owner-builders almost always underestimate.
These are the rates, interest and insurance while the DA lands, and they are real cashflow, not a line you can defer. Construction money funds the build itself, which is a different product again from the development finance that backs a larger project (here is how development finance works). Mapping the whole journey, from settling the land to handing over the keys, is exactly what our construction hub is built around.
The holding-cost breakdown: what you carry while the DA lands
The carry on a development site breaks down into a handful of recurring costs, and the biggest is almost always the interest on whatever debt sits against the land. Read top to bottom, the pattern is clear: each line is charged on the dirt whether or not a single brick is laid.
The table is indicative and every site and council differs, but the categories are consistent. Add them up across an approval that can take many months, and the carry is rarely trivial. The point of pricing it early is simple: you want to settle the block already knowing what it costs to carry the site until you can build.
How do owner-builders fund the carry on a site?
Owner-builders usually fund the carry with short-term private funding (caveat or private lending) secured against the equity in the site, not with a major bank, because banks rarely lend against vacant land that produces no income. What makes one of these requests fund quickly and another stall is rarely the property itself.
Funds faster
- Clear equity in the site and a defined exit plan
- An approval timeline and a construction facility ready to take over
- Short-term private funding matched to the term, not open ended
- A self-employed track record the funder can read quickly
Slower or stalls
- Asking a major bank to fund holding costs on vacant land
- No exit plan, so the funder cannot see how it gets repaid
- Stretched equity once existing site debt is counted
- An open-ended approval with no construction finance behind it
In practice, it comes down to whether the funder can see a clean exit plan and enough equity to be comfortable. A short-term facility such as a caveat loan or private lending is priced for speed and a defined term, typically one to six months (typically, varies by lender), not for years of open-ended holding. You can read the mechanics of each in our caveat loan and private lending glossary entries.
Because this is short-term credit, it pays to check that any funder you use holds or operates under an Australian Credit Licence, which you can verify through ASIC. A broker on your side does the same check, and lines the facility up against the exit so it is sized to the gap rather than the wish list.
Should you fund the holding costs at all?
Whether to fund the carry at all comes down to one test: do you have a credible exit plan that clears the short-term funding before it becomes expensive? Short-term funding is a tool for a defined gap, not a way to sit on land indefinitely.
The cleanest version is to carry the site only as long as it takes the approval to land, then refinance onto a construction or development finance facility that repays the carry. An exit strategy the funder believes is what turns a holding-cost loan from a risk into a sensible, time-boxed step between two clean positions. If the approval is uncertain, or the numbers only work assuming a sale that has not happened, the honest answer is often to wait, renegotiate, or restructure before you commit.
This is also where sequencing the whole stack matters, because the holding-cost facility, the construction money and the take-out all have to fit together. Our construction loan pack walks through that stack, and if you are weighing one structure against another, second mortgage vs caveat loan sets out the trade-offs.
Holding a development site before you build is a real, recurring cost, council rates, land tax, insurance and the interest on any site debt, and a standard construction loan will not cover it. Owner-builders who get through this stage fund the carry deliberately, with short-term private funding sized to a clear exit plan, and only for as long as it takes approvals to land.
Key takeaway: fund the carry only against a credible exit plan, and treat short-term private funding as a time-boxed step, not a long-term hold.Frequently Asked Questions
A caveat loan works by lodging a caveat over a property you already hold equity in, which lets a private funder advance short-term money quickly without a full first-mortgage process. The term is short by design, commonly one to six months (typically, varies by lender), and it is repaid from a defined exit such as a refinance or sale.
You can read the mechanics in our caveat loan glossary entry and how it compares in second mortgage vs caveat loan.
The owner of the development site pays the holding costs before construction, including council rates, land tax, insurance and interest on any site debt. These costs run whether or not you have started building, and a standard construction loan does not cover them because it only funds the build itself.
Many owner-builders carry the site with short-term private funding until approvals land.
Getting a loan to cover holding costs while waiting for a DA is possible, usually through short-term private funding such as a caveat loan or private lending secured against the equity in the site rather than a major bank. Lenders focus on your equity and your exit strategy, because there is no income from vacant land.
A caveat loan is one common structure for this gap.
If your development is delayed, holding-cost funding becomes more expensive, because short-term facilities are priced for a defined term and roll-overs cost more. This is why the exit plan matters more than the rate: a delay with no fallback is where owner-builders get caught, so building a buffer into the term and keeping your funder informed early is what keeps a delay manageable.
Our development finance guide covers how the take-out facility fits in.
Whether private lending or a caveat loan is better for carrying a site depends on your security position and how fast you need to settle. A caveat loan is typically the quickest to arrange where you have clear equity, while broader private lending can suit a more structured or larger facility.
Both are short-term tools, and the right choice is the one that matches your exit plan and timeline, which a broker can map across the panel.
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