Avoid these 4 mistakes when financing a development site

Purchasing a development site for multiple units requires a different approach to standard home lending.

If you're looking at a development opportunity in Bateau Bay, whether it's a dual occupancy block near the golf course or a site with potential for townhouses closer to the plateau, you'll need construction finance structured around progressive drawdowns, not a single upfront settlement amount.

Construction finance works on a drawdown schedule, not a lump sum

When you buy a development site and intend to build multiple dwellings, lenders release funds in stages tied to specific milestones during the build. You're charged interest only on the amount drawn down at each stage, not the full loan amount from day one. The typical schedule includes drawdowns at slab down, frame stage, lock-up, fixing stage, and practical completion. Each release requires a progress inspection to confirm the work matches the contracted stage.

Consider a buyer who purchases a 700-square-metre block in Bateau Bay with approved plans for two attached townhouses. The land costs $650,000 and the construction budget is $820,000. The lender releases the land portion at settlement, then stages the construction amount across five progress payments as the builder completes each phase. At frame stage, roughly 30% of the construction budget is released. By lock-up, around 55% is drawn. The buyer pays interest only on what's been released, which keeps monthly costs lower during the build compared to borrowing the full amount upfront.

Your deposit needs to cover both land and a portion of construction costs

Most lenders require a 20% to 30% deposit calculated against the total project value, which includes land purchase price and construction costs combined. That deposit doesn't just sit in your account. It's used progressively, with the land component paid at settlement and the construction portion drawn down as a buffer during the build. If your deposit is too light, you may be required to inject additional equity or presell one of the units before construction starts.

Council approval and fixed price contracts are non-negotiable for most lenders

Lenders want certainty before they commit to construction funding. You'll need development approval in place before applying, and that means final council sign-off, not just a lodged application. The construction contract must be a fixed price building contract with a registered builder. Cost plus contracts, where the final price isn't locked in, are rarely accepted for multi-unit development sites because the risk sits with the lender if costs blow out.

In Bateau Bay, council approval timelines vary depending on the site and the proposed density. A dual occupancy on a corner block with complying setbacks may move through faster than a three-townhouse development requiring variations. Factor in at least three to six months from lodgement to approval before you apply for finance.

You'll pay a progressive drawing fee each time funds are released

Every time the lender releases a progress payment to your builder, they charge a progressive drawing fee to cover the cost of the valuer's inspection and administration. This fee typically ranges from $300 to $600 per drawdown, depending on the lender. Over five drawdowns, that adds up to $1,500 to $3,000 in fees during the construction phase. These aren't included in your loan amount unless you specifically request it, so budget for them separately or factor them into your working capital.

Off the plan finance and development site finance are handled differently

If you're comparing a multi-unit development site to buying an off-the-plan apartment, the lending structure is completely different. Off the plan finance is treated as a standard purchase with a single settlement, while a development site with your own construction contract requires staged construction funding managed through progress payments. The distinction matters because some brokers and lenders specialise in one but not the other, and applying through the wrong channel wastes time.

Lenders expect you to commence building within a set period from approval

Once your construction loan is approved, most lenders require you to start the build within six to twelve months from the disclosure date. If you delay beyond that window, the lender may reassess your application, which could result in a different interest rate or updated serviceability calculations. That's particularly relevant if you're planning to settle on the land first and then take time to finalise your builder selection or refine your plans.

In our experience working with buyers around Bateau Bay and the broader Central Coast, delays often happen because the buyer underestimates how long it takes to coordinate a registered builder, lock in fixed pricing, and satisfy pre-construction conditions like BASIX certificates and engineering reports. Start those conversations before you go unconditional on the land contract.

Your serviceability is assessed on the full loan amount, even though you're paying interest only on drawn funds

Lenders calculate your borrowing capacity based on the total loan amount, not just what's currently drawn down. That means even though your monthly repayments during construction are lower, the lender assesses whether you can service the full debt once construction is complete and the loan converts to principal and interest repayments. If you're planning to hold both units as investment properties, they'll factor in rental income projections, but those projections need to be supported by a valuation that includes an 'as if complete' rental assessment.

If you're looking at a development opportunity in Bateau Bay and want to understand how construction finance will work for your specific site, call one of our team or book an appointment at a time that works for you. We'll walk through your deposit position, your council approval status, and the lender options that suit multi-unit projects on the Coast.

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