Do you know what lenders assess for vacant land loans?

Financing vacant commercial land works differently to built properties

Commercial vacant land finance typically requires a 30% to 50% deposit and carries higher interest rates than improved properties. Lenders view undeveloped land as a higher risk because it generates no immediate rental income and depends entirely on future development plans to deliver value.

Lang Lang sits in a rural corridor that has attracted agribusiness, transport operators, and industrial users seeking affordable land within reach of South Gippsland Highway. The absence of urban retail competition and the township's rural zoning framework mean that buyers often target land for warehousing, machinery storage, or future development linked to agricultural or logistics operations. Lenders assess these applications based on the proposed use, the financial strength of the borrower, and the feasibility of the development.

What LVR can you expect on a commercial vacant land purchase?

Most lenders will offer a maximum loan to value ratio of 50% to 70% on commercial vacant land, which means you need to contribute between 30% and 50% of the purchase price as a deposit. This is more conservative than the 70% to 80% LVR typically available for owner-occupied or tenanted commercial property.

Consider a buyer purchasing a three-hectare parcel of commercial land in Lang Lang to build a cold storage facility for a family farming operation. At a purchase price within the typical local range, a lender offering 60% LVR would require a 40% deposit. The buyer would also need to cover stamp duty, legal fees, and valuation costs, typically adding another 5% to 7% to the upfront requirement. The lender's decision hinged on the buyer's cashflow from existing operations, the approved development application, and evidence of pre-commitment from anchor tenants.

How lenders assess serviceability without rental income

Because vacant land produces no immediate rental income, lenders rely entirely on the borrower's existing cashflow or business income to service the loan. You need to demonstrate that your income from other sources can cover the loan repayments, even if the land remains undeveloped for an extended period.

For owner-occupied purchases where the buyer intends to develop and occupy the property, lenders may accept business financial statements and tax returns showing consistent profitability. For investment scenarios, lenders want to see a credible development plan, approved zoning, and ideally a tenant or buyer lined up for the completed project. In Lang Lang, this often involves buyers with established operations in horticulture, transport, or rural services who can demonstrate both capacity to service debt and a commercial rationale for the purchase.

Loan terms and repayment structures for vacant land

Commercial vacant land loans are typically offered with shorter loan terms than standard commercial property finance, often ranging from one to five years rather than the 10 to 25-year terms available for improved properties. This reflects the lender's expectation that the land will be developed or sold within a defined period.

Lenders may offer interest-only repayments during the holding or development phase, which reduces the monthly commitment while the land remains undeveloped. Once construction begins or the property is occupied, the loan can often be refinanced into a longer-term facility with principal and interest repayments. Variable interest rates are common, though some lenders offer fixed rate options for one to three years. Redraw facilities are less common on vacant land loans because the shorter term and higher risk profile limit the flexibility lenders are willing to extend.

Commercial zoning and development approval

Lenders require confirmation that the land is zoned for the intended use and, where relevant, that a development application has been approved or is in progress. In Lang Lang, the rural and industrial zoning framework means that buyers need to confirm the land is suitable for their intended use before settlement.

A buyer intending to build a transport depot would need to demonstrate that the land is zoned appropriately, that access to South Gippsland Highway meets council requirements, and that utilities such as water and power can be connected at a reasonable cost. Lenders will review council planning documents and may request a town planner's report before approving the loan. Vacant land without clear zoning or with planning restrictions will either be declined or offered at a significantly reduced LVR.

GST and the margin scheme on commercial land purchases

Commercial land transactions may attract GST unless the margin scheme applies, which can have significant implications for the purchase price and your borrowing requirement. Under the margin scheme, GST is calculated on the margin between the original purchase price and the sale price, rather than on the full sale price, which can reduce the GST component substantially.

If the vendor is registered for GST and the margin scheme does not apply, you may need to pay an additional 10% GST on the purchase price, which increases both the upfront cost and the commercial loan amount required. Your solicitor or conveyancer should confirm the GST treatment before you finalise your offer, as this affects both the contract price and the settlement funds you need to arrange. Some lenders will include the GST component in the loan calculation, but this depends on the overall LVR and your financial position.

How commercial property valuation affects loan approval

Lenders will order a commercial property valuation to confirm the land's market value and assess whether it provides sufficient security for the loan. Vacant land valuations are based on comparable sales, zoning, location, access, and development potential, rather than rental income or capitalisation rates used for improved properties.

In Lang Lang, valuers will consider recent sales of similar parcels, proximity to the township and highway, availability of services, and the intended use. A valuation that comes in below the purchase price may result in the lender reducing the loan amount, which means you need to contribute additional equity or renegotiate the purchase price. Buyers should obtain an indicative valuation before making an offer to avoid unexpected funding gaps at settlement.

Building a commercial portfolio with vacant land

Purchasing vacant land can be a useful strategy for buyers looking to build a commercial portfolio over time, particularly when developed properties are either unavailable or priced beyond reach. The lower entry price and potential for capital growth during development can offset the higher deposit requirement and holding costs.

For buyers in Lang Lang, this often involves acquiring land in stages, developing one parcel, and using the equity generated to fund the next purchase. The rural location and proximity to growth corridors in South East Melbourne make the area attractive for buyers with a medium-term development outlook. However, lenders will assess each application on its own merits, and the ability to service multiple loans without rental income from undeveloped parcels remains a key hurdle.

Call one of our team or book an appointment at a time that works for you to discuss how commercial property finance can support your purchase in Lang Lang.

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