Proven Tips to Secure Land for Apartment Construction

Purchasing land specifically for apartment construction requires a different financing approach than buying a residential block for a single dwelling.

You need a lender willing to fund the land purchase, accept a development application timeline, and structure progressive drawdown against construction milestones. Not all lenders offer this, and those that do assess applications based on the viability of your project, not just your income and deposit.

Construction Finance for Land Purchase and Development

Construction finance for apartment projects combines land acquisition funding with staged drawdown as the build progresses. You purchase the land first, then draw additional funds at agreed milestones such as slab pour, frame completion, lockup, and practical completion.

Bentleigh East sits within the Glen Eira Council area, where medium-density development has grown steadily around Centre Road and along key transport corridors. Suitable land here often comes with existing dwellings that need demolition, or vacant blocks zoned for multi-unit development. Lenders assess both the land value and the proposed end value of the completed apartments when determining how much they will lend.

Consider a scenario where a developer purchases a 700-square-metre block zoned for four townhouses. The lender funds the land purchase upfront, then releases construction funding in stages tied to a fixed price building contract. Each drawdown requires a progress inspection to confirm the work has been completed to the specified stage. This structure protects both the borrower and the lender by ensuring funds are only released as value is added to the project.

How Construction Loan Applications Are Assessed

Lenders assess construction loan applications based on the feasibility of the development, the experience of the builder, and your capacity to service the debt during and after construction.

You need council approval or at least a development application lodged before most lenders will issue formal approval. The lender will review your council plans, the building contract, and the cost breakdown. They want to see that the project has been properly costed, that the builder is registered and insured, and that the end value supports the loan amount. In Bentleigh East, where apartment projects often target families seeking proximity to schools like McKinnon Secondary College and Bentleigh East Primary, lenders also consider the marketability of the completed units.

If you are using a cost plus contract rather than a fixed price building contract, expect more scrutiny. Cost plus arrangements can lead to budget overruns, and lenders prefer the certainty of fixed pricing. Some lenders will not fund cost plus contracts at all for apartment developments.

Progressive Drawdown and Interest Charges

With construction finance, lenders only charge interest on the amount drawn down at each stage, not the full loan amount from day one.

This means you pay interest on the land purchase immediately, then additional interest as each construction payment is released. During the build, most borrowers opt for interest-only repayment options to manage cash flow, particularly if the apartments are not generating rental income yet. Once construction is complete, the loan typically converts to principal and interest repayments, or you refinance into a standard investment loan if you are holding the units as rentals.

Each drawdown incurs a Progressive Drawing Fee, which varies by lender but typically ranges from $200 to $400 per inspection. Over a four to six-stage build, this adds up, so factor these costs into your project budget. The progress payment schedule needs to align with your building contract to avoid delays. If the builder reaches lockup but the lender has not yet released funds for that stage, you may need to cover the gap personally or risk holding up the build.

Fixed Price Contracts and Progress Payment Finance

A fixed price building contract is the most common arrangement for apartment construction and the one most lenders prefer.

Under this structure, the builder quotes a total price and agrees to deliver the project for that amount, regardless of cost variations during construction. The contract includes a progress payment schedule, usually tied to stages like base, frame, lockup, fixing, and completion. Progress payment finance releases funds at each of these stages, following a progress inspection by the lender's valuer or a quantity surveyor.

In our experience, developers in Bentleigh East often work with local builders familiar with Glen Eira Council requirements, which can speed up approvals and reduce the risk of unexpected delays. If your builder has a strong relationship with council and a history of completing projects on time, mention this in your construction loan application. Lenders view builder experience as a risk factor, and a registered builder with a track record in the area strengthens your case.

Owner Builder Finance and Registered Builders

If you are planning to act as an owner builder, your financing options narrow significantly.

Most lenders require a registered builder to be involved in apartment construction, particularly for projects with more than two dwellings. Owner builder finance is available for single dwellings and sometimes duplexes, but for larger developments, lenders want the protection that comes with a licensed professional. This includes mandatory insurance, adherence to building codes, and accountability for defects.

Even if you have construction experience, lenders see owner builders as higher risk because there is no third-party oversight and no builder's warranty. If you are determined to manage the build yourself, expect to contribute a larger deposit and accept a lower loan-to-value ratio. For most apartment projects, engaging a registered builder is not only a lender requirement but also a practical necessity given the complexity of coordinating plumbers, electricians, and other sub-contractors across multiple units.

Development Application and Council Approval Timing

You need to commence building within a set period from the Disclosure Date, which is the date your building contract is signed.

Most lenders include a condition that construction must start within six to twelve months of loan approval. If you have purchased land but your development application is still with Glen Eira Council, this timeline can become tight. Council approval in Bentleigh East can take several months, particularly for multi-unit developments that require planning permits and neighbour consultation.

Plan your application timeline carefully. If you anticipate delays, discuss this with your broker before signing the land contract. Some lenders offer conditional approval based on a lodged development application, but they will not release construction funds until full council approval is granted. If your approval is delayed beyond the lender's timeframe, you may need to reapply or extend your approval, which can involve additional fees and reassessment of your financial position.

Land and Construction Package vs Separate Purchase

A land and construction package bundles the land purchase and build into a single transaction, often through a developer or project home builder.

This can simplify the process because the builder handles council plans, the development application, and the construction contract. However, these packages are typically limited to specific designs and may not suit custom apartment projects. In Bentleigh East, where many developers are building boutique multi-unit projects tailored to the local market, a separate land purchase followed by a custom design is more common.

When you purchase suitable land separately, you have full control over the design, the builder, and the construction timeline. You also have the flexibility to negotiate land price and terms independently. The downside is that you need to coordinate council approval, building contracts, and construction finance yourself, or work with a broker who understands the process. For developers building a custom four-unit project on a Bentleigh East block, this approach usually delivers better returns because the design can be optimised for the site and the target market.

Interest Rate Structures and Loan Amount Considerations

Construction loan interest rates are typically slightly higher than standard home loan rates because of the additional risk and administration involved.

The loan amount is based on both the land value and the proposed end value of the completed development. Lenders usually cap lending at 70 to 80 percent of the total project cost, including land, construction, and associated fees. If the land is purchased separately before construction starts, you may need to provide proof of equity or savings to cover the gap between the land loan and the construction drawdown.

During construction, you are charged interest on the drawn balance, and this is usually capitalised or paid monthly from your own funds. Once the project is complete, the loan converts to a standard repayment structure, or you can refinance to a different product if you want to split the debt across individual units or access a lower rate. Some borrowers choose to refinance immediately after completion to lock in a lower rate and move away from the construction product.

Laneer Finance Group works with lenders across Australia to access construction loan options that suit apartment developments in Bentleigh East and surrounding suburbs. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions