Simple hacks to fund a multi-unit development site

Funding a multi-unit development site works differently to buying a standard home

When you purchase land with the intention of building multiple dwellings, lenders assess both the land acquisition and the construction phase as a single development project. This means the finance structure needs to account for holding costs during council approval, staged construction draws tied to completion milestones, and the end value of multiple completed units rather than a single dwelling.

In Berwick and Harkaway, we regularly see buyers attracted to larger parcels near the urban growth boundary where subdivision potential exists. Harkaway in particular offers larger blocks with rural amenity, and some of these sites present opportunities for multi-unit development under current planning overlays. The challenge is structuring finance that covers both the land purchase and the construction phase without requiring full cash payment upfront.

A construction loan for a multi-unit site typically operates as a land and construction package, where the lender approves the total project based on plans, costings, and a fixed price building contract. The loan amount is determined by the combined land cost and build cost, with funds released progressively as construction reaches agreed stages. This differs from a standard home loan where the full amount settles on day one.

How lenders assess a multi-unit development application

Lenders evaluate your borrowing capacity based on the end value of the completed development, not just the land price. They require detailed council-approved plans, a fixed price contract from a registered builder, and evidence that the project is feasible within the approved loan amount. Your deposit requirement is usually higher than a standard home purchase, often between 20% and 30% of the total project cost, depending on whether you intend to sell the units on completion or hold them as investment properties.

Consider a buyer purchasing a 2,000-square-metre block in Berwick zoned for dual occupancy. The land costs are one component, but the lender also needs to see builder quotes, a development application approval from Cardinia Shire Council, and a valuation based on the completed project. If the end value is sufficient and the buyer has adequate deposit and income to service the loan during construction, the application can proceed. Without council approval in place, most lenders will not proceed, as the project remains speculative.

The progressive drawdown structure and how it affects your repayments

You only pay interest on the amount drawn down at each stage, not the full approved loan amount. When you settle on the land, the lender releases funds to cover the purchase price. After that, construction draws are released as the builder completes specific milestones such as slab, frame, lockup, fixing, and practical completion. Each drawdown is subject to a progress inspection, and some lenders charge a progressive drawing fee for each release.

During the construction period, you typically make interest-only repayments on the drawn amount. Once construction is complete and the final draw is released, the loan converts to principal and interest repayments unless you have structured it as an investment loan where interest-only may continue. The interest rate during construction is often slightly higher than standard variable rates, reflecting the additional risk lenders associate with building projects.

In a scenario where the land portion is drawn down first and construction begins three months later, your repayments during those three months cover only the land component. As each stage is completed and funds are released to the builder, your repayment amount increases. This structure helps manage cash flow during the build, but you need to budget for incrementally rising repayments over a period that can extend six to twelve months depending on project complexity.

Why council approval and a registered builder are non-negotiable

Lenders will not release construction funds without a fixed price building contract signed with a registered builder who holds appropriate insurance. Owner builder finance for multi-unit projects is rarely available, as the risk profile is too high for most lenders. The builder must provide a detailed progress payment schedule that aligns with the lender's drawdown stages, and any variation to the contract during construction can delay drawdowns or require additional approvals.

Council approval is equally critical. A development application that has been submitted but not yet approved will not satisfy lender requirements. You need a planning permit in hand before most lenders will issue formal approval, particularly for projects involving subdivision or multiple dwellings. In areas like Harkaway, where planning overlays can be complex due to rural zoning and vegetation protection requirements, obtaining this approval can take several months. Buyers sometimes secure the land with a longer settlement period to allow time for the permit process, but this requires negotiation with the vendor and adds holding costs if a deposit is paid upfront.

How Berwick and Harkaway zoning affects your development finance options

Berwick sits within the General Residential Zone in many areas, which supports medium-density development including townhouses and dual occupancy. Harkaway is predominantly Rural Living Zone, where larger minimum lot sizes apply and subdivision potential is more limited. These zoning differences directly affect what lenders are willing to fund, as the end value and marketability of the completed units depend on what the land is approved for.

A site in central Berwick approved for three townhouses will generally be viewed more favourably by lenders than a rural Harkaway block where planning constraints limit development to two dwellings on a large parcel. The perceived exit strategy matters. Lenders want confidence that if the project stalls or the borrower cannot complete, the partially built development or the land itself can be sold without significant loss. Urban sites with clear demand and comparable sales data are lower risk than semi-rural projects with less precedent.

If you are considering a construction loan for a Harkaway site, expect lenders to scrutinise council approval conditions more closely, particularly around bushfire overlays, native vegetation, and access requirements. These factors can extend the approval timeline and increase build costs, both of which affect the lender's willingness to fund the project at the requested loan amount.

Structuring the loan to manage cash flow during the build

The construction phase requires careful management of cash flow, particularly if you are continuing to pay rent or a mortgage on another property while the development is underway. Interest-only repayment options during construction help reduce the monthly outlay, but you still need to budget for the incremental increase as each progress payment is drawn. Some buyers underestimate the cumulative interest cost during a build that extends beyond six months, particularly if delays occur due to weather, material shortages, or variations.

You also need to account for costs not covered by the construction loan. These can include development application fees, soil testing, surveyor costs, utility connections, and landscaping. Lenders typically fund the contract price with the registered builder, but ancillary costs are usually paid out of pocket. Having a cash buffer of at least 10% of the total project cost is prudent, particularly for multi-unit projects where unforeseen issues are more likely than a single dwelling build.

If your intention is to sell one or more of the completed units to repay part of the loan, you need to factor in settlement timing and holding costs. A unit listed for sale on completion may not settle for several months, during which time you are making repayments on the full drawn loan amount. Some buyers structure the loan as a combination of construction funding and a residual home loan or investment loan for any units they intend to retain, allowing them to refinance once construction is complete and the units are valued individually.

What happens if the project runs over budget or schedule

Cost overruns are one of the most common issues in multi-unit construction projects. A fixed price building contract provides some protection, but variations requested by the buyer or unforeseen site conditions can add to the final cost. If the approved loan amount is fully drawn and the project is not complete, you will need to fund the shortfall from your own resources or seek additional finance, which is difficult to obtain mid-project.

Lenders require a progress inspection before releasing each drawdown, and if the inspector determines that the work does not justify the next stage payment, the draw will be delayed. This can create tension between you and the builder, particularly if the builder is expecting payment to continue work. Ensuring that the progress payment schedule in your building contract aligns precisely with the lender's drawdown stages is critical to avoid these delays.

If the project extends beyond the expected timeline, your interest-only period may expire before construction is complete, forcing you onto principal and interest repayments at a higher monthly cost. Some lenders allow extensions to the construction period, but this is not automatic and may require re-approval or additional documentation. Planning for a realistic construction timeline with buffer built in is essential, particularly for multi-unit projects where coordination of trades and council inspections can cause delays.

When to speak with a broker about structuring your development finance

Multi-unit development finance is not a product you can easily compare online or arrange directly with a single lender. Different lenders have different risk appetites for development projects, and some will not lend on rural or semi-rural sites at all. A mortgage broker in Berwick or Harkaway who understands local planning requirements and has access to construction loan options from banks and lenders across Australia can identify which lenders are most likely to support your specific project.

You should arrange this conversation before you make an offer on the land. Knowing your borrowing capacity, the deposit required, and the likely loan structure allows you to negotiate settlement terms that align with the time needed for council approval and finance approval. Making an offer conditional on finance without understanding the lender's requirements for development projects can leave you in a difficult position if the standard conditions do not cover the additional documentation and approvals required.

Call one of our team or book an appointment at a time that works for you. We'll review your project plans, discuss your timeline, and structure the finance to support both the land purchase and the construction phase without unnecessary delays or cost.

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