Holding Costs on Land You Cannot Build On Yet
Land Holding Costs Before You Build | Switchboard Finance
Construction
Land Holding Costs · Private Lending · Builders
Holding Costs on Land You Cannot Build On Yet
You have settled on the parcel, but the approval is not in and the build cannot start. The rates notices keep arriving and the interest keeps ticking. Here is how private lending carries that gap, and what a lender needs to see before they will fund it.
Quick Answer
You can usually fund the carry on land you cannot build on yet through private lending against the land. With no build to fund, the lender reads the equity and the exit, not your income, and the holding loan bridges to a build start or a sale.
The land is yours, the build is not approved, and the costs have started
Picture a builder who has settled on a corner block for the next project. The plans are with council, the DA is months away, and not a cent of construction finance can be drawn until that approval lands. Meanwhile the council rates notice arrives, the land tax assessment follows, and the loan that bought the dirt is charging interest every day. Holding costs accrue before a single brick is laid, and on raw land there is no rent and no progress claim to offset them.
This is the period most builders underestimate. Rates, land tax and interest carry, indicative, varies by site, but together they are rarely trivial across the months between settlement and a build start. The question is not whether the costs exist; it is how you fund the carry without stalling the project. Across the construction lane, this gap is one of the most common places a builder's cash gets quietly trapped.
Why this is not a development finance deal yet
The instinct is to call a development lender, but the timing is wrong. No DA yet, so it is not a development finance deal; there is no approved scheme, no cost plan and no staged build for a development facility to fund. A development lender prices and structures around an approved project and its drawdown schedule, which is what how development finance works describes once a build is live, not before it.
What you have instead is a holding problem: an asset with equity, a cost that runs while you wait, and an exit that has not arrived yet. That is a different shape of deal. It sits closer to private lending against the land than to construction funding, and the carry is bridged until the project is approval-ready and a build facility can take over. That is where this commonly lands when a builder calls partway through the approval wait.
What a private lender actually reads on raw land
Private lending reads the land equity and the exit, in that order. The income test that dominates a bank application moves to the background, because a holding loan is not being serviced from trading cashflow; interest is typically capitalised, varies by lender, and rolled into the loan to be cleared at exit. What the lender is really underwriting is how much room sits between the loan and the land value, and how believable the way out is.
That is why the loan-to-value ratio on vacant land sits well below what you would see against a built, income-producing asset, indicative, varies by site. Raw land is harder to value and slower to sell, so the equity buffer is the lender's protection. The scenarios below are roughly how a holding request reads from the funding seat.
The split is not about the builder's character; it is about whether the equity and the exit carry the deal. Where a request fails, it is almost always the exit, not the land. A caveat-style facility can sometimes hold a smaller carry quickly, but the same equity-and-exit test applies.
The exit defines the loan, and rates shape the carry
Everything on a holding loan points at the exit. A build start or a sale is the exit, not a refinance into thin air, and the lender wants it dated before the loan is written. When the DA lands and the project becomes fundable, the holding loan is cleared as the build facility draws down; if the plan changes, a sale clears it instead. Either way the exit strategy is the spine of the whole structure.
The carry itself is not static. Holding costs move with the cash rate, so the interest line on a parcel held for several months shifts with the broader rate environment set out in the Reserve Bank's monetary policy. Council rates and land tax move on their own cycles, but the financing cost tracks rates, which is why the holding budget should be read as a moving figure rather than a fixed one. Matching the term to a realistic exit, and leaving headroom for the carry, is how a holding loan stays under control. If you want the carry mapped against the eventual build, the construction loan pack sets out how the stages connect.
Land you cannot build on yet still costs money, and those holding costs accrue before a single brick is laid. With no DA, it is not a development finance deal; it is an equity-and-exit problem that private lending is built to bridge. The lender reads the land equity and a dated exit, capitalises the interest, and sizes the loan conservatively because raw land is slow to sell. The carry moves with rates, so it should be budgeted as a moving figure.
Key takeaway: Fund the carry against the land equity with a dated exit to a build start or a sale, not an open-ended hold.Frequently Asked Questions
Yes, you can finance the holding costs on land before you build, usually through private lending secured against the land equity rather than a development facility. Because there is no head contract and often no DA, the lender reads the equity and the exit, not your income. Interest is typically capitalised, varies by lender, so the carry does not need to be serviced monthly.
Land holding finance is not the same as development finance, because there is no approved build to fund yet. With no DA, it is not a development finance deal, so the structure sits closer to private lending against the land than to the staged drawdowns you see when how development finance works once a project is approved. The holding loan bridges the period before a build facility can be arranged.
A private lender works out how much they will lend on vacant land by applying a conservative loan-to-value ratio to the assessed land value, then testing the exit. Raw land carries less certainty than a built asset, so the ratio sits well below a bank's, indicative, varies by site. The equity buffer and a credible exit do the heavy lifting in the decision.
Holding costs do change when interest rates move, because the interest carry is the largest line in most holding budgets. Holding costs move with the cash rate set through the Reserve Bank's monetary policy, so a parcel held for several months is rarely a fixed number. Council rates and land tax are set separately, but the financing line tracks the broader rate environment and should be budgeted as a moving figure.
What counts as an exit on a land holding loan is a build start that refinances into a construction facility, or a sale of the land. A build start or a sale is the exit, not a refinance into thin air, so a credible exit strategy has to be visible before the loan is written. Lenders want the exit dated and evidenced, not merely intended.
FBAA Accredited
