Buying a development site is different to buying a home.
The lender wants to see proof that the project makes financial sense before they'll release funds, and the approval process involves layers that don't exist in residential lending. You need land acquisition finance upfront, a development loan structure that matches your build timeline, and a clear understanding of what council approval actually means to a bank.
If you're looking at unit development opportunities in Malvern, the fundamentals don't change, but the stakes do. Sites here trade at a premium, and miscalculating your deposit or underestimating holding costs can derail a project before construction starts.
How Land Acquisition Finance Works for Development Sites
Land acquisition finance covers the purchase of the site itself. Most lenders will fund this separately from the construction phase, and you'll need to service the loan during the period between settlement and when your development loan converts to a full drawdown facility.
Consider a scenario where you're purchasing a site in Malvern with the intention to subdivide and build three townhouses. You've identified a property on a corner block near Glenferrie Road. The purchase price reflects the suburb's median land values, and you've arranged a loan to value ratio of 65%. That means you're covering 35% from your own equity, plus stamp duty and acquisition costs. The lender treats this as a first mortgage over the land, and interest accrues monthly until the project advances.
You won't draw construction funds at this stage. The land loan sits separately, and once you have DA approval and a builder locked in, the development loan is structured on top of it. Some lenders allow you to roll the land loan into the development facility. Others require you to refinance or use a second lender for the construction phase. Knowing which structure your lender prefers before you settle on the site saves time and avoids funding gaps later.
What Lenders Actually Want to See in a Development Application
DA approval is not enough on its own. Lenders want the approved plans, the planning permit, and confirmation that all conditions have been satisfied or are capable of being satisfied before drawdown begins.
In our experience, buyers assume that lodging a development application is sufficient to unlock finance. It's not. The lender's credit team will review the council approval in detail. If there are unresolved conditions relating to traffic management, stormwater, or overlooking, they'll either delay the loan or decline it outright until those items are cleared. You also need a quantity surveyor's report, an up-to-date feasibility study, and evidence that presales or end buyer demand exists for the product you're building.
Malvern sits within the City of Stonnington, and council expectations around design quality, setbacks and neighbourhood character are high. If your DA includes a condition requiring amended elevations or materials schedules, deal with it before you approach a lender. Conditional approvals create uncertainty, and lenders price for risk.
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Fixed or Variable: How Development Interest Rates Are Structured
Most development loans are written on a variable interest rate. Lenders prefer flexibility because the loan is drawn progressively, and the risk profile changes as the build advances.
Fixed rates are available in some cases, but they're less common and typically reserved for projects with a contractual presale in place or a defined exit strategy involving an end buyer. The variable rate structure allows you to repay early without penalty once the development is complete and you've either sold down the units or refinanced into a term facility. Rates are expressed as a margin over the bank's reference rate, and that margin depends on your loan to value ratio, your experience as a developer, and the strength of your business financials.
If you're entering the market as a first-time developer, expect the margin to reflect that. Lenders will also look at whether you're funding the project through a company structure, a trust, or in your personal name. Each option has different implications for serviceability and recourse, and your structure should be locked in before you sign a contract on the site.
Development Deposit and Equity: What You Actually Need Upfront
The deposit on a development site is larger than a residential purchase. Most lenders will cap the loan to value ratio at 65% to 70% for land acquisition, which means you need to bring 30% to 35% in cash or equity, plus costs.
Those costs include stamp duty, legal fees, and any holding costs between settlement and the start of construction. If you're planning to hold the site for six months while you finalise plans and approvals, factor in the interest on the land loan during that period. It's also worth noting that land acquisition doesn't attract the same stamp duty concessions as residential property, so your upfront outlay will be higher than you'd see on a comparable home purchase.
For a unit development in Malvern, equity often comes from an existing property portfolio or from a joint venture partner. If you're accessing equity from your home, the lender will assess your ability to service both the existing mortgage and the new development loan. That serviceability test applies even if the development loan is interest-only during construction.
How Council Approval Timing Affects Your Development Timeline
The timeline from contract to DA approval can stretch anywhere from three to nine months, depending on the complexity of the application and whether objections are lodged.
In Malvern, neighbourhood character overlays and heritage considerations mean that applications are scrutinised closely. If your site is near a heritage precinct or within a Design and Development Overlay, expect the process to take longer. Lenders won't commit to a development loan until the planning permit is issued, so your land loan needs to be structured to cover that gap.
Cost overruns during the approval phase are common. If council requests additional reports or amended plans, you'll need to pay for those variations before the permit is granted. Budget for that upfront, and don't assume the initial DA lodgement will be the final version.
Why Project Feasibility Comes Before Loan Approval
Every development loan application requires a feasibility study. The study outlines project costs, expected revenue from sales or leasing, and the profit margin after all expenses and interest are accounted for.
Lenders want to see a minimum profit margin of 15% to 20%, depending on the project size and your track record. If the feasibility shows a margin below that threshold, the loan will be declined or restructured with a lower LVR. The study also needs to account for contingencies. A 10% contingency on construction costs is standard, but if you're working on a site with access constraints or contamination risk, the contingency should be higher.
Your feasibility will be reviewed by the lender's valuer, and if their assessment of end values differs from yours, the loan amount will be adjusted. That's why it's worth commissioning an independent valuation before you exchange contracts on the site. If the numbers don't work at the purchase price you've agreed to, it's harder to renegotiate once you're committed.
What Happens If You Don't Have an Exit Strategy
An exit strategy defines how you'll repay the development loan once the project is complete. The two most common options are selling the completed units to individual buyers or refinancing into a commercial or investment loan and holding the assets.
Lenders will ask for evidence of your exit strategy at the application stage. If you're planning to sell, they'll want to see comparable sales data for similar unit developments in Malvern. If you're planning to hold, they'll assess your ability to service a long-term loan based on projected rental income. Without a clear exit strategy, the loan won't proceed.
Malvern's proximity to Caulfield Station, Glenferrie Road retail and quality schooling zones makes it a strong market for both owner-occupiers and investors. That demand supports higher end values, but it also means you're competing with other developers for buyer attention. Your feasibility needs to reflect realistic absorption rates, not best-case scenarios.
If you're considering a unit development site in Malvern and want to understand how land acquisition finance and development loans are structured in practice, call one of our team or book an appointment at a time that works for you. We work with lenders across Australia who fund property development at different scales, and we'll walk you through what's required before you commit to a purchase.
Frequently Asked Questions
What deposit do I need to buy a development site in Malvern?
Most lenders will fund up to 65% to 70% of the purchase price for land acquisition, which means you'll need 30% to 35% in cash or equity. You'll also need to cover stamp duty, legal fees, and holding costs until construction begins.
Can I get development finance before DA approval?
You can secure land acquisition finance before DA approval, but the development loan itself won't be approved until you have a planning permit with all conditions satisfied or clearly resolvable. Lenders need to see the approved plans and a feasibility study before they'll commit to construction funding.
Are development loans fixed or variable?
Most development loans are structured on a variable interest rate because they're drawn progressively and lenders prefer flexibility. Fixed rates are less common and typically only available for projects with presales or a contractual end buyer already in place.
What is a loan to value ratio for development finance?
The loan to value ratio for development finance is usually capped at 65% to 70% for land acquisition and may increase slightly during the construction phase, depending on presales and your experience. The LVR determines how much you need to contribute upfront and affects the interest rate margin.
What happens if my development project runs over budget?
If your project exceeds the approved budget, you'll need to inject additional equity to cover the shortfall. Lenders require a contingency allowance in the feasibility study, typically 10% of construction costs, but cost overruns beyond that are your responsibility.
