Funding a Multi-Unit Site: Land, Approvals and Draws

Construction finance for a multi-unit site is assessed on the whole project, not just on you as a borrower. Lenders look at the approvals, the build contract, the builder and the numbers behind the end result, so Brisbane buyers should have those pieces lined up before they sign a contract for the land.

This article is for investors and developers weighing up a site for several dwellings. It covers the order of approvals, how funds are released, and how to plan your holding costs.

Do You Need Council Approval Before Applying for Construction Finance?

In most cases, yes. Lenders generally want evidence of a development application with council approval before they will release construction funds, because it shows the project is permitted.

If you are buying a site in Brisbane, the relevant approval will come through Brisbane City Council. An application still sitting with council may attract conditional approval at best, and funds will not be released until the approval is in place. For that reason, the land contract matters. A longer settlement period or a condition that depends on approval gives you room to work. A short, unconditional contract can leave you carrying the land with no approved plans.

Lenders also tend to ask for a set start date. Lenders commonly require building to start within a set period, often around 6 to 12 months, of loan approval or contract date, and the period varies by lender. If approval is slow and that period expires, the loan may need to be re-assessed, so confirm your lender's exact start-date rule.

How a Land and Construction Package Is Structured

A land and construction package funds the site purchase and the build under one approval. The land is paid for at settlement, and the construction component is released in stages as the work is completed.

Your loan amount is set against the total project cost or the expected value of the finished dwellings, depending on the lender. Deposit or equity requirements vary by lender and project, so confirm them with the lender. A broker can access construction loan options from banks and lenders across Australia and show you how those requirements compare for your project size.

The number of dwellings changes your options. Lender policies on the number of dwellings differ, so check the limit before you commit. If your plan is a larger scheme, our commercial loans page explains the other pathway.

What Lenders Want From Your Builder and Building Contract

Lenders generally expect a fixed price building contract with a registered builder for multi-unit projects. A fixed price contract sets the cost up front, which gives the lender confidence the budget will hold.

A cost plus contract is different, because the final price depends on actual costs. The trade-off is that cost plus can be more flexible on design changes, but it carries more budget risk, and lenders tend to view it more cautiously on larger projects.

In Queensland, an owner-builder permit is not available for multiple-dwelling developments, so a multi-unit project generally needs a QBCC-licensed builder. That means owner builder finance is not a realistic pathway for this type of project.

The contract should include a progress payment schedule that matches the stages the lender will fund. A mismatch between what the builder invoices and what the lender will release can leave you covering a gap from your own cash.

How Progressive Drawdown and Progress Inspections Work

With a progressive drawdown, the lender releases money in instalments as each build stage is finished, and you only pay interest on the amount drawn down. Before each release, the lender usually arranges a progress inspection to confirm the work is complete.

The builder submits a claim for the stage, the inspection confirms it, and the lender pays the builder. The builder then uses those funds to pay trades such as plumbers and electricians. Some lenders charge a Progressive Drawing Fee each time funds are released, so on a project with many stages these fees add up and belong in your budget.

The trade-off of paying interest only on drawn funds is that your repayment rises as the loan balance grows. Interest-only repayment options during construction keep early payments lower, but they do not reduce the loan. Once the build is complete, the loan moves to principal and interest or is repaid from sales, depending on your plan.

Estimating Holding Costs During the Build: A Worked Example

Interest costs rise with every draw, so you should model them across the whole build rather than only at settlement. The figures below are illustrative and use a rate of 6.75% p.a., not a current offer.

Consider an investor who settles on a development site and has drawn $600,000 at settlement. Interest-only at 6.75% p.a. is $40,500 a year, or $3,375 a month. As the build progresses, the drawn balance reaches $1,000,000. At the same illustrative rate, interest-only repayments are now $67,500 a year, or $5,625 a month.

If that investor only budgeted for the first figure, they would be short by $2,250 every month once the loan is fully drawn. By building the higher figure into the feasibility from the start, they can set aside enough cash to cover the interest through the final stages. They can also test the result on a calculator and check their borrowing capacity against the later repayments.

These figures exclude fees, rate changes and any interest on other debts, so treat them as a guide only.

Pre-Sales, Exit Strategy and Servicing Your Loan

Some lenders require a portion of the dwellings to be sold off the plan before they approve a multi-unit development, particularly where the borrower has limited development experience. Requirements vary by lender and project, so it is worth confirming early.

Lenders also look at how you will repay the loan. The two usual exits are selling the dwellings or refinancing to a long-term loan. If you plan to keep some or all of the dwellings, a construction to permanent loan structure may suit, and our investment loans page covers what to consider once the build is complete.

Because the site earns no income during construction, lenders assess whether you can cover the interest from your other income or savings. A pre-sale gives you more certainty, though it locks in a price that may be lower than the market later.

Preparing Your Finance Before You Buy the Site

The most useful step is to speak with a broker before you exchange contracts. That lets you test the project numbers, the contract conditions and the lender requirements while you can still negotiate the land contract.

Bring your draft plans, builder quote, a feasibility budget and your current financial position. A broker can then match the project to lenders whose policies fit your dwelling count and experience level.

Call one of our team or book an appointment at a time that works for you, and we will work through your multi-unit site finance before you commit.

Frequently Asked Questions