6 Ways to Finance Property Development in Australia

The Australian property development market is a fast-paced environment. According to the Australian Bureau of Statistics, there were 226,307 total sector dwellings under construction in the March quarter of 2024, of which 90,369 were new developments.

This presents many opportunities for investors, developers, and businesses. Along with these opportunities comes the challenge of getting funded.

Most non-traditional lenders understand the complexities of the Australian property development landscape and may offer flexible and tailored funding solutions depending on individual circumstances.

Why Is Funding Important in Property Development?

When you’re developing a property, getting the right funding option is key. Development finance loans are tailored financial products designed specifically for various types of construction projects. Here are 6 ways to fund property development, each with its own pros and cons.

1. Commercial Loans

Commercial loans (also known as business loans) are used to purchase properties for commercial use. These loans provide long-term stability and flexibility for developers. It also allows them to spread repayments over a longer period and cover significant expenses such as construction costs. Commercial loans are usually used by established businesses or developers with good credit history.

Pros of Commercial Loans for Property Development

Access to Large Funds – Provides funds for large property developments.
Flexible Repayment Terms – Helps ease cash flow.
High ROI – This can generate high returns if the development is successful.
Fixed Interest Rates – Stability with fixed monthly repayments.
Tax Benefits – In Australia, interest payments incurred for income-producing purposes are tax-deductible. This reduces overall tax liability.

Cons of Commercial Loans for Property Development

Higher Upfront Costs – Comes with high fees and higher interest rates.
Risk of Foreclosure – Failure to repay can cause you to lose the property
Complex Application Process – Requires detailed financials and business plans.
Higher Interest Rates – More expensive than residential loans.
Strict Eligibility Criteria – Lender requirements can limit access to funds.

2. Buy-to-Let Loans

A buy-to-let loan is for individuals or investors who want to purchase a residential property to rent it out to tenants. The purpose of a buy-to-let loan is to fund a property that will generate rental income. These loans require higher deposits and higher interest rates than residential loans. To be profitable, you need to calculate the rental income vs. mortgage repayments.

Pros of Buy-To-Let Loans for Property Development

Income Generation – Provides a steady stream of rental income from tenants.
Capital Growth – Property value appreciation can generate big capital gains over time.
Tax Benefits – Some expenses like mortgage interest and maintenance costs are tax deductible.
Portfolio Diversification – Allows investors to diversify their portfolios by adding real estate assets.
Leveraged Investment – Enables property acquisition with a small deposit, leveraging the investment.

Cons of Buy-To-Let Loans for Property Development

Market Risk – Rental income and property values can be affected by market fluctuations.
Tenant Issues – Managing tenants can be time consuming, requires effort, and has potential legal headaches.
Void Periods – There can be periods with no rental income if the property is unoccupied.
Maintenance Costs – Ongoing property maintenance can be costly and reduce overall profit.
Regulatory Changes – Changes in tax laws or rental regulations can impact profit and increase costs.

3. Bridging Loans

Bridging loans are short-term funding solutions to “bridge” the gap between transactions. You can purchase a new property before selling your existing property. Bridging loans are for developers who need quick access to funds for property purchases or extensive renovations.

Pros of Bridging Loans for Property Development

Quick Funding – Provides fast funding so you can act fast on opportunities.
Short-Term Funding – For short-term needs such as purchasing a property before securing long-term funding.
Flexibility – Can be used for various purposes such as purchasing or completing an unfinished project.
High Loan to Value (LTV m) – Offers a high LTV ratio so you can borrow a big chunk of the property’s value.

Cons of Bridging Loans for Property Development

High Interest Rates – Higher interest rates than standard mortgages.
Short Repayment Period – Repayment is quick and can be financially straining.
Risk of Repossession – If you can’t repay the loan on time, the lender can repossess the property.
Additional Fees – Arrangement, valuation, and legal fees on top of the loan cost.

4. Development Finance

Development finance is a loan for large scale property development projects. It is commonly referred to as a development project. This type of finance is usually for experienced builders and developers to raise the funds to turn their building ideas into reality.

Development finance covers various stages, from land acquisition to construction. The funds are released in stages (tranches) as the project progresses. You need to have detailed project plans, feasibility studies, and cash flow forecasts when applying for development finance.

Pros of Development Finance for Property Development

Tailored Funding – It is designed to finance property development projects. Therefore, it needs to match the project’s requirements.
High Loan to Cost Ratio – Covers a big chunk of development costs and reduces upfront capital requirements.
Flexible Terms – Offers flexibility in repayment terms and structures for various project timelines.
Expertise and Guidance – Lenders provide valuable industry expertise and support throughout the development process.

Cons of Development Finance for Property Development

High Interest Rates – Higher interest rates than traditional loans.
Complex Application Process – Requires detailed project plans, and financial projections and often experience in development.
Risk of Cost Overruns – If the project goes over budget, additional funding can be costly or hard to get.
Close Monitoring – Lenders monitor the project closely, which can add administrative burden and pressure.
Exit Strategy Required – Lenders require a clear exit strategy, such as property sale or refinance, which adds pressure to meet deadlines.

5. Equity Release

Equity release is a way to unlock capital from existing properties. This is for developers who have significant equity in their current portfolio. The funds released can be used to reinvest in a new property development project, fund deposits, or cover unexpected project costs. You can get the money as one lump sum, in small amounts, or a combination of both.

Pros of Equity Release for Property Development

Access to Capital – Get immediate access to funds tied up in property equity without having to sell the property.
Flexible Use of Funds – The released equity can be used for things like property development or investment.
Retain Property Ownership – You can keep the property and unlock its value for other investments.

Cons of Equity Release for Property Development

Inheritance Reduced – The loan amount plus interest is repaid from the property’s value upon sale and therefore reduces inheritance.
High Interest Rates – Often higher interest rates than traditional loans, increases cost over time.
Long-Term Commitment – Once committed, it can be hard and costly to reverse or repay the equity release plan.
Property Value Reduced – The amount owed can grow significantly over time and may exceed the original equity released.

6. Joint Venture Finance

Property developer joint venture finance is a partnership where a developer works with a financier or another developer to fund a project. This type of financing involves sharing profits for funding. Joint ventures are often used for large scale property developments where the financial burden and risk is shared among partners.

Pros of Joint Venture Finance for Property Development

Shared Risk – Risk is spread among partners, so individual financial exposure is reduced.
Combined Expertise – Partners bring in different skills and knowledge and therefore increase project success potential.
Access to Larger Capital – Pooling resources allows for bigger or more ambitious projects.
Flexible Financing – Joint ventures can be structured in many ways. It offers customised solutions for different projects.

Cons of Joint Venture Finance for Property Development

Shared Control – Decision making is shared. This can lead to potential conflicts and slower processes.
Profit Sharing – Profits must be split among all partners and therefore reduce individual financial gain.
Complex Agreements – Joint ventures require detailed legal agreements. These can take time and money to set up.
Disputes – Differences in goals or management style can lead to conflicts and can kill the project.
Exit Challenges – Exiting the joint venture can be difficult and may require buyouts or legal action.

What Does Maxiron Capital Do?

Now that you know your options when it comes to financing property development, who do you approach?

Maxiron Capital is your go-to for business financing solutions in Australia. Since 2002, we have been providing bespoke financial solutions for property developers, investors and businesses. We may offer low-rate financing options suitable for those who have difficulty accessing traditional bank funding, depending on individual situations.

Most of our products offer fast funding and personalised service, sometimes without income proof, depending on criteria and policies. Whether you need first, second or third mortgages, bridging loans or equity release, Maxiron Capital has you covered. We can help you achieve your financial goals with solutions that are as unique as your project.

Maxiron Capital as a Partner in Property Development

At Maxiron Capital we understand property development. We offer a range of loan products to suit developers. We have:

First Mortgages – for purchasing or refinancing property
Second Mortgages – for ongoing projects or other funding needs
Third Mortgages – for developers who need more capital
Bridging Loans – short-term loans for quick access to funds
Equity Release – release capital from your existing properties to re-invest in new developments

We can offer flexible and tailored financial solutions designed to support projects through various stages, subject to terms and conditions.

Maxiron Capital’s Settlement Process

Applying for a loan with Maxiron Capital is stress free. We aim to provide an easy and streamlined settlement process to ensure funds are released when needed, depending on the specific circumstances of the loan.

STEP 1 – Get A Quote

Let us discuss your situation. Obtain your quotation and submit the application form for a comprehensive assessment.

STEP 2 – Get Approval

Once approved, we will send you a letter of approval. Sign it and return the letter to us so we can begin processing your funding.

STEP 3 – Deal Settled

Once the settlement process is initiated, we will aim to handle the necessary steps so that you can focus on other aspects of your project.

Expert teams from lenders can assess your needs and recommend suitable finance options based on available information.