Construction Loans and Multi-Unit Development Sites

Purchasing a Multi-Unit Development Site

If you're looking at purchasing a multi-unit development site in Melonba or the surrounding Western Sydney region, understanding how construction funding works is crucial to turning your vision into reality. Multi-unit developments offer significant opportunities for property investors and developers, but they require specialised construction finance that differs from standard home loans.

At KM Financial Service, we help clients access construction loan options from banks and lenders across Australia, ensuring you have the right financial structure to support your development project from land purchase through to completion.

What Makes Multi-Unit Development Finance Different?

When you're purchasing a multi-unit development site, you're not just buying land - you're investing in a project that requires careful planning, council approval, and staged construction funding. Unlike a standard house & land package, multi-unit developments involve:

• Obtaining development application approval from your local council
• Working with a registered builder or managing owner builder finance
• Coordinating multiple trades including plumbers and electricians
• Managing a more complex progress payment schedule
• Higher loan amounts to cover land acquisition and construction costs

The construction finance for these projects typically operates on a progressive drawdown system, where lenders only charge interest on the amount drawn down rather than the full loan amount from day one.

Understanding Progressive Drawdown Construction Loans

Construction funding for multi-unit developments works differently from traditional mortgages. Instead of receiving the entire loan amount upfront, funds are released in instalments as your project reaches specific milestones. This is called a progressive payment schedule or construction draw schedule.

Here's how it typically works:

1. Initial drawdown: Covers the land purchase and initial establishment costs
2. Base stage: Released once the slab or foundation is complete
3. Frame stage: Paid after the frame is erected and roof is on
4. Lock-up stage: Funds released when external walls, windows and doors are installed
5. Fixing stage: Covers internal fixtures and fittings
6. Final completion: Released upon practical completion and final inspection

Each drawdown requires a progress inspection to verify that work has been completed to the required standard before funds are released to pay sub-contractors and suppliers.

Fixed Price Contracts vs Cost Plus Arrangements

When arranging construction finance for your multi-unit development, lenders will want to see either a fixed price building contract or a detailed cost plus contract. Each has different implications:

Fixed Price Contracts: These provide certainty around the total build cost, making it easier to secure construction loan approval. The building contract specifies exactly what will be built and for how much, with progress payments tied to specific stages.

Cost Plus Contracts: These involve paying the actual cost of materials and labour plus a margin to the builder. While offering more flexibility for custom design projects, they can be harder to finance as the final cost isn't fixed.

Most lenders prefer fixed price building contracts for multi-unit developments as they provide more certainty around the loan amount required.

Council Plans and Development Approval

Before any construction finance can be finalised, you'll need council approval for your multi-unit development. This means having detailed council plans prepared by professionals and submitted through the development application process.

Lenders typically require:

• Approved development application
• Detailed architectural plans
• Engineering reports and soil tests
• Proof that you can commence building within a set period from the Disclosure Date
• Evidence of suitable land zoning for multi-unit development

These requirements protect both you and the lender by ensuring the project is viable and legally compliant.

Interest Rates and Repayment Options

Construction loan interest rates for multi-unit developments can vary based on factors including:

• The size and complexity of your project
• Your experience as a developer
• Your deposit size and overall financial position
• Whether you're using a registered builder or owner builder finance
• The location and quality construction standards

During the construction phase, most lenders offer interest-only repayment options, meaning you only pay interest on the funds actually drawn down. This helps manage cash flow during the build period.

Once construction is complete, many borrowers transition to a construction to permanent loan, where the facility converts to a standard investment loan with principal and interest repayments.

Additional Costs to Consider

When budgeting for your multi-unit development, factor in these additional costs:

• Progressive Drawing Fee: Lenders charge this fee (typically $200-$400) for each progress inspection and drawdown
• Development application fees: Payable to council
• Building insurance: Required throughout construction
• Interest charges: Accumulating during the build period
• Professional fees: For architects, engineers, and surveyors

Making additional payments toward your loan during construction can help reduce the overall interest burden.

Working with KM Financial Service

Navigating construction finance for multi-unit developments requires specialist knowledge and access to the right lenders. As a mortgage broker in Melonba, we understand the local market and can help you:

• Structure appropriate construction funding for your development
• Access construction loan options from banks and lenders across Australia
• Understand the construction loan application process
• Compare construction loan interest rates
• Arrange suitable land acquisition finance
• Set up land and build loan structures
• Coordinate with your builders and professionals

Whether you're looking at spec home finance, project home loan options, or custom home finance for a multi-unit development, our team can guide you through the process.

We also assist with related financing needs including investment loans, commercial loans, and even refinancing existing developments.

Your multi-unit development represents a significant investment and opportunity. Having the right construction finance structure in place from the beginning sets you up for success, ensuring funds are available when needed and that your project stays on schedule.

Call one of our team or book an appointment at a time that works for you to discuss your multi-unit development plans and explore your construction funding options.