Lenders assess a development through a different lens from the developer. The developer is primarily interested in whether the project is commercially worthwhile. The lender is focused on whether the facility can be repaid in full, whether enough equity is committed, whether the project will remain fully funded if conditions deteriorate and whether the sponsor has the capacity to deal with problems.
That means a lender does not rely on one headline number.
It reviews the relationship between land value, construction costs, total development cost, gross realisation value, peak debt, presales, profit margin, cost to complete, equity, contingency and time. It then applies sensitivity tests to determine what happens if values fall, costs rise or the project takes longer than expected.
This guide explains the major property development feasibility metrics used in Australian development finance, how they interact, which ratios are commonly misunderstood and how to present a feasibility that gives lenders confidence.
What Is a Property Development Feasibility?
A property development feasibility is a financial model that estimates the revenue, costs, funding requirements, timing and projected return of a development project.
At a minimum, it should answer five questions:
What will the completed project be worth or sell for?
What will it cost to acquire, approve, construct, finance and sell?
How much debt and equity will be required, and when?
How much profit or return is expected?
What happens if the assumptions are wrong?
A robust feasibility is more than a static summary of revenue less costs. It should include a time-based cash flow showing when costs are incurred, when lender drawdowns are required, when interest is capitalised, when sale deposits are received and when settlement proceeds repay debt.
The timing matters because two projects with the same total cost and revenue can require very different levels of peak debt and equity.
For example, a project with early presale settlements or staged lot releases may recycle capital progressively. A project that receives all revenue at the end may carry a higher debt balance and a larger interest bill, even if the headline profit before finance is identical.
Developer Feasibility vs Lender Feasibility
A developer's base-case feasibility usually reflects the developer's expected outcome.
A lender's feasibility is normally more conservative. The lender may:
adopt the independent valuer's gross realisation value rather than the developer's sales forecast;
use the quantity surveyor's cost estimate rather than an early builder budget;
exclude uncommitted or uncertain revenue;
add lender fees, valuation fees, quantity-surveyor fees and legal costs;
increase the interest allowance;
require a larger contingency;
extend the assumed project duration;
discount presales that do not meet policy;
treat some developer fees as deferred or subordinated;
use the lower of cost and value for certain calculations; and
stress the project for lower values, higher costs and delayed completion.
The purpose is not necessarily to predict the exact final result. It is to determine whether the project has enough buffer to protect the lender if the base case is not achieved.
A strong funding submission therefore presents both the expected case and credible downside cases. It does not hide risk. It demonstrates how the risk will be managed.
The Core Feasibility Equation
At its simplest:
Development Profit = Gross Realisation Value - Total Development Cost
This equation is useful, but it is not enough on its own.
The same dollar profit can represent a very different return depending on the size and duration of the project.
A $3 million profit on a $10 million total development cost is materially stronger than a $3 million profit on a $30 million cost. Likewise, a return generated in 18 months is different from the same return generated over four years.
Lenders and investors therefore convert the raw profit into ratios and time-based returns.
1. Gross Realisation Value: GRV or GDV
Gross Realisation Value, often abbreviated to GRV, is the estimated total value of the completed development.
Gross Development Value, or GDV, is often used interchangeably. Terminology varies between lenders, valuers and markets, but the practical concept is usually the same: the expected gross value of the completed project before selling costs and debt repayment.
For a project intended for sale, GRV is generally the total expected selling price of all completed lots, dwellings or units.
For example:
20 townhouses expected to sell for an average of $900,000 would produce a projected GRV of $18 million;
50 residential lots expected to sell for a combined $25 million would produce a projected GRV of $25 million; and
an industrial estate containing ten units valued at a combined $30 million would produce a GRV of $30 million.
For a project intended to be retained, the completed value may be based on capitalised net income, comparable sales, discounted cash flow or another valuation method appropriate to the asset.
Why lenders focus on GRV
GRV is central because it represents the principal source of debt repayment in a sell-down strategy and the value supporting the refinance in a hold strategy.
However, lenders rarely rely solely on the developer's forecast. They normally consider an independent valuation and may analyse:
comparable sales;
current competing stock;
buyer demand;
settlement risk;
product mix;
incentives and rebates;
GST treatment;
selling periods;
foreign-buyer exposure;
lease assumptions for commercial assets; and
the depth of the market at the proposed price point.
Common GRV mistakes
Common errors include using gross advertised prices without allowing for incentives, applying premium rates to every unit, assuming all stock sells at practical completion and failing to reconcile the feasibility with the valuer's schedule.
A credible GRV should be supported by evidence and should clearly state whether figures are inclusive or exclusive of GST.
2. Total Development Cost: TDC
Total Development Cost is the estimated cost of completing the project, including acquisition, development, finance and disposal costs.
A comprehensive TDC may include:
land purchase price or agreed land value;
stamp duty and acquisition costs;
planning, design and consultant fees;
authority charges and infrastructure contributions;
demolition, remediation and site preparation;
civil works;
building construction;
external works and landscaping;
project management and development management fees;
statutory costs and insurance;
marketing, agent commissions and selling costs;
lender establishment fees;
valuation, quantity-surveyor and legal fees;
capitalised interest;
contingencies;
GST and tax assumptions where relevant to the model; and
any existing debt or transaction costs that must be refinanced at settlement.
Why TDC is frequently understated
Early feasibilities often focus on the land and build contract while omitting secondary costs. Those omissions can materially overstate profit and understate the equity requirement.
The most commonly missed items include:
finance costs during delays;
lender and professional fees;
authority upgrades;
utility connections;
latent conditions;
sales commissions;
display and marketing costs;
escalation before construction starts;
retention and defect obligations;
GST timing; and
working-capital requirements outside the formal construction budget.
A lender will usually reconcile the developer's TDC with the building contract, quantity surveyor's report, consultant budgets, planning approvals and loan cash flow.
3. Development Profit
Development profit is the projected surplus after deducting total development cost from GRV.
Development Profit = GRV - TDC
For example:
GRV: $27,500,000
TDC: $22,000,000
Projected Development Profit: $5,500,000
The dollar profit is important, but lenders also consider how large it is relative to cost and revenue.
A project with a meaningful dollar profit may still have a thin margin if the project is large. A thin margin gives the developer less capacity to absorb cost increases, valuation reductions, delays or settlement defaults.
The lender may also adjust the developer's profit by removing contingent revenue, increasing costs or adopting the valuer's lower GRV.
4. Profit on Cost
Profit on cost expresses development profit as a percentage of TDC.
Profit on Cost = Development Profit / Total Development Cost
Using the example above:
$5,500,000 / $22,000,000 = 25.0%
Profit on cost is sometimes called development margin on cost, return on cost or profit on total development cost.
It is one of the most common development feasibility measures because it shows the buffer between cost and value relative to the capital required to deliver the project.
Why lenders care about profit on cost
A stronger margin provides more capacity to absorb adverse movements before the lender's repayment is threatened.
There is no universal minimum that applies to every project. The acceptable margin depends on factors such as:
development type;
project duration;
planning status;
sponsor experience;
sales risk;
construction risk;
location;
leverage;
presale coverage; and
lender appetite.
A modest-margin, low-risk project with strong presales and an experienced sponsor may be viewed differently from a speculative project with the same margin and no presales.
5. Profit on Revenue
Profit on revenue expresses development profit as a percentage of GRV.
Profit on Revenue = Development Profit / GRV
Using the same example:
$5,500,000 / $27,500,000 = 20.0%
Profit on revenue will always be lower than profit on cost for a profitable project because the denominator is larger.
This creates a common source of confusion. A 20% margin on revenue is not the same as a 20% margin on cost.
Developers should always identify which calculation is being quoted. Lenders may use one, the other or both.
6. Loan-to-Cost Ratio: LTC
Loan-to-Cost measures the loan relative to the project's recognised cost base.
LTC = Loan Amount / Total Development Cost
If a lender provides a $15,400,000 facility against a $22,000,000 TDC:
$15,400,000 / $22,000,000 = 70.0% LTC
The remaining 30% of cost must generally be funded by developer equity, investor equity, subordinated capital or another source acceptable to the senior lender.
“Feasibility is a decision, not a spreadsheet.”
— The Australian Property Development Handbook
What loan amount is used?
The answer depends on the lender and the facility structure.
Possible measures include:
total committed facility limit;
peak drawn balance;
net senior debt excluding undrawn contingency;
funded development costs excluding capitalised interest;
total debt including mezzanine finance; or
senior debt only.
A term sheet stating 70% LTC does not by itself explain how much cash the developer must contribute. The developer should confirm:
which costs are included in TDC;
whether land is recognised at cost or value;
whether interest and fees sit inside the facility limit;
whether the contingency is funded;
whether GST is funded;
whether equity must be contributed first; and
whether lender-funded costs are reimbursed or paid directly.
Gross LTC vs net LTC
Some parties distinguish between gross LTC and net LTC.
Gross LTC may include capitalised interest and lender fees in the loan numerator. Net LTC may focus on debt applied directly to land and development costs.
The labels are not used consistently. The calculation should always be shown rather than assumed.
7. Loan-to-Value Ratio: LVR
Loan-to-Value Ratio measures debt relative to the value of the security or completed project.
For a development facility, lenders may consider more than one LVR:
land LVR at settlement;
as-is LVR during planning;
end value or GRV LVR;
peak debt to GRV; and
completed investment-value LVR for a hold strategy.
Using the example facility:
$15,400,000 / $27,500,000 = 56.0% of GRV
A project can satisfy the lender's LTC limit but fail the LVR limit, or vice versa.
For example, an expensive project with a modest end value may have an acceptable LTC but an excessive end-value LVR. A highly profitable project with a low historical cost base may have a high LTC but a conservative LVR.
The lender will usually apply the more restrictive outcome.
LTC vs LVR
LTC measures the lender's contribution to cost.
LVR measures the debt against value.
Both matter because cost and value can move independently.
A lender that advances solely against cost could be exposed if the project is overcapitalised. A lender that advances solely against value could indirectly fund an excessive proportion of the sponsor's cost.
8. Developer Equity Requirement
The developer's equity requirement is not always simply TDC less the headline loan limit.
It can include:
acquisition equity;
costs paid before financial close;
equity required to reduce existing debt;
costs excluded by the lender;
the gap between the valuer's and developer's figures;
a lender-required contingency contribution;
interest or fees outside the facility;
GST timing requirements;
presale shortfall support;
working capital; and
a liquidity reserve for delays and overruns.
The lender also assesses the source and quality of the equity.
Cash already spent may count if it is verifiable and relates directly to the project. Land equity may be recognised, subject to the lender's valuation and cost-versus-value policy. Related-party loans, unpaid fees, vendor finance and future profits may be discounted or treated as subordinated debt rather than genuine equity.
Equity contributed to date and equity still available should be separately identified.
9. Peak Debt
Peak debt is the highest projected loan balance during the facility term.
It is often more useful than the total facility limit because it reflects the time-based cash flow.
Peak debt is affected by:
when land debt is drawn;
the construction drawdown schedule;
interest capitalisation;
lender fees;
presale settlements;
staged releases;
GST inflows and outflows;
cost timing;
contingency usage; and
the project completion and sales period.
A facility limit may exceed forecast peak debt because it includes undrawn contingency. Conversely, a weak cash-flow model may underestimate peak debt by assuming sales settle too early or interest stops accruing at practical completion.
The lender will test whether the facility is sufficient at every point in the project, not merely in aggregate.
10. Cost to Complete
Cost to complete is the amount required to finish the project from a particular date.
At any drawdown, the lender commonly assesses whether undrawn loan funds plus remaining committed equity are sufficient to meet the cost to complete.
A simplified test is:
Available Funds = Undrawn Facility + Unused Committed Equity
The project should remain fully funded when available funds are compared with the quantity surveyor's assessed cost to complete, including appropriate contingency and finance costs.
Why cost to complete matters
A project can have a strong end value and still be in trouble if there is not enough cash to reach completion.
This is one of the most important distinctions in development finance. The lender is not only concerned with ultimate profitability. It must be satisfied that the project can be completed without an unfunded gap.
If costs rise or equity is used earlier than expected, the lender may require the developer to inject additional capital before the next drawdown.
11. Contingency
Contingency is an allowance for costs that are uncertain or not fully identified at the time the feasibility is prepared.
Contingencies may be applied to:
construction costs;
civil works;
professional fees;
authority costs;
latent conditions;
escalation; and
the overall project budget.
The appropriate contingency depends on the project's stage and risk.
A project with a completed design, detailed quantity-surveyor report and fixed-price building contract may justify a different allowance from a project with incomplete documentation, provisional sums, complex ground conditions or a long pre-construction period.
A contingency is not a substitute for known costs.
If a cost is reasonably expected, it should be included in the base budget rather than hidden in the contingency.
Lenders also consider who funds any contingency overrun and whether the contingency is inside or outside the facility limit.
12. Construction Cost Coverage
The lender will test whether the building contract and other works budgets align with the feasibility and the quantity surveyor's assessment.
Key questions include:
Is the contract fixed price, guaranteed maximum price or cost plus?
Are all drawings and specifications complete?
What provisional sums remain?
Are authority works included?
Are demolition, remediation and external works included?
Is the builder financially capable?
Is the construction program realistic?
Are retention, defects and escalation properly allowed for?
Does the builder's drawdown schedule match the loan cash flow?
A lender may not accept the contract price at face value. It will generally rely on an independent quantity surveyor to confirm the reasonableness of the cost, progress claims and cost to complete.
13. Interest and Finance Cost Allowance
Finance costs can materially affect feasibility, particularly on long or delayed projects.
The model should allow for:
establishment fees;
line fees or non-utilisation fees;
interest on land debt;
interest on progressive construction drawdowns;
default or extension pricing where relevant to downside analysis;
valuation and quantity-surveyor fees;
lender legal costs;
mortgage registration and discharge costs;
brokerage or arranging fees where applicable; and
interest during the post-completion sell-down period.
A common mistake is to calculate interest as the annual rate multiplied by the full facility for the entire term. That can overstate or understate the true amount depending on the draw profile.
A better model calculates interest on the projected outstanding balance over time.
The lender may then apply a buffer by extending the duration, increasing the assumed rate or requiring an interest reserve.
14. Presales and Debt Coverage
Presales can reduce market and repayment risk, but the number of contracts alone does not determine their value to a lender.
The lender may assess:
total presale value;
net settlement proceeds after GST and selling costs;
deposit size;
deposit security;
buyer profile;
related-party purchasers;
foreign-buyer concentration;
finance conditions;
sunset dates;
contract rescission rights;
valuation support;
settlement timing; and
whether contracts are unconditional and enforceable.
Presale debt coverage
A lender may compare net qualifying presale proceeds with peak debt.
For example, if net qualifying presale proceeds are $12 million and forecast peak debt is $15 million, presale debt coverage would be 80%.
However, terminology and calculations vary. Some lenders require a minimum dollar amount, a percentage of stock, a percentage of debt coverage or a combination.
The developer should confirm what constitutes a qualifying presale and whether the lender measures coverage against gross debt, net debt or a specified facility amount.
15. Sales Rate and Settlement Period
The speed at which unsold stock is expected to sell and settle can materially affect interest, holding costs and lender risk.
A feasibility should distinguish between:
exchange date;
deposit receipt;
practical completion;
title registration;
settlement date; and
receipt of net sale proceeds.
Assuming all remaining stock settles immediately at completion can understate peak debt and finance costs.
The lender may apply a conservative sales rate and extend the tail period after construction.
For a subdivision, the model should also account for staged releases and lender release prices. For an apartment or townhouse project, it should account for valuation risk and purchaser finance at settlement.
16. Internal Rate of Return: IRR
Internal Rate of Return is a time-sensitive measure of investment performance.
It considers the timing and amount of cash invested and cash returned.
Two projects may generate the same profit and equity multiple, but the project that returns capital sooner will generally produce the higher IRR.
IRR is particularly relevant to equity investors and joint-venture partners. It may be less central to a conventional senior lender, but it can still indicate whether the project's return is adequate for its duration and risk.
IRR should be interpreted carefully because it is highly sensitive to timing assumptions.
A feasibility that assumes an early refinance or sale can show an attractive IRR even if the underlying dollar profit is modest. Delays can materially reduce IRR without changing the final profit by the same proportion.
17. MOIC and Equity Multiple
MOIC means Multiple on Invested Capital.
A simplified equity MOIC is:
Equity MOIC = Total Equity Distributions / Total Equity Invested
If investors contribute $5 million and receive $8 million in total distributions, the equity MOIC is:
$8,000,000 / $5,000,000 = 1.60x
This means the investors receive their original capital plus $3 million of profit.
The term equity multiple is often used in a similar way. The precise calculation should be confirmed because some models treat distributions, fees, tax and timing differently.
MOIC does not account for time. A 1.60x return achieved in 18 months is economically different from a 1.60x return achieved over five years. That is why MOIC is often considered alongside IRR.
A lender may also use the term minimum MOIC to describe a contractual minimum return on mezzanine or private credit. That is different from the project's equity MOIC and should not be confused with it.
18. Debt Yield
Debt yield is more commonly used for income-producing property than for a pure sell-down development.
Debt Yield = Stabilised Net Operating Income / Loan Amount
If a completed asset is expected to produce $1.8 million of stabilised net operating income and the proposed loan is $18 million:
$1,800,000 / $18,000,000 = 10.0% debt yield
Debt yield does not depend on the capitalisation rate or interest rate. It shows the lender the income return on its loan amount.
For build-to-hold projects, childcare centres, service stations, industrial assets and other income-producing developments, debt yield can help indicate refinanceability and downside protection.
The lender will scrutinise the quality of the income, including lease terms, incentives, vacancies, operating costs, tenant covenant and stabilisation assumptions.
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19. Debt Service Coverage Ratio: DSCR
Debt Service Coverage Ratio compares net operating income with required debt repayments.
DSCR = Net Operating Income / Debt Service
If annual net operating income is $1.8 million and annual interest and principal payments are $1.35 million:
$1,800,000 / $1,350,000 = 1.33x DSCR
DSCR is most relevant where the completed asset will be retained or where interim income is relied upon to service debt.
A development lender may focus more heavily on cost to complete and exit value during construction, then assess DSCR when considering the investment or refinance facility.
20. Exit LVR and Refinanceability
A hold strategy is only credible if the completed project can support the proposed refinance.
The feasibility should test:
completed value;
stabilised net income;
capitalisation rate;
refinance LVR;
debt yield;
DSCR;
leasing period;
tenant incentives;
operating costs;
interest-rate sensitivity; and
the availability of an appropriate investment lender.
For example, a development may be profitable on paper but fail to refinance if the completed valuation is lower than expected or the net income does not support the required debt.
A lender may therefore require evidence that the refinance amount is achievable under conservative assumptions, not merely that the development facility is below the projected completed value.
21. Land Value, Site Cost and Residual Land Value
The amount paid for the site and the value attributed to it can materially affect the feasibility.
Lenders may consider:
actual acquisition cost;
current as-is market value;
value with planning approval;
existing debt;
related-party acquisition terms;
deferred settlement or vendor finance;
holding costs; and
the lower-of-cost-and-value approach used in the lender's policy.
Residual land value
Residual land value estimates the maximum amount that could be paid for the site while still achieving the required project return.
A simplified approach is:
Residual Land Value = GRV - Non-Land Development Costs - Required Profit
The actual calculation should also allow for acquisition costs, finance, tax treatment and timing.
Residual analysis is useful before purchasing a site because it exposes whether the land price leaves enough margin for risk.
A project can be well designed and competently delivered but remain unfinanceable because too much was paid for the land.
22. Break-Even Analysis
Break-even analysis identifies how far values can fall or costs can rise before the project profit is exhausted.
In the worked example:
GRV: $27,500,000
TDC: $22,000,000
Profit: $5,500,000
The project has a simple value buffer of $5.5 million before revenue equals cost, ignoring tax and changes in selling or finance costs.
The break-even fall in GRV is:
$5,500,000 / $27,500,000 = 20.0%
However, this does not mean the lender is protected against a 20% value fall.
The lender may face selling costs, enforcement costs, delays, incomplete works and further interest. The project may also breach covenants or require additional equity well before accounting profit reaches zero.
Break-even analysis should therefore be considered alongside LVR, cost to complete, liquidity and sensitivity testing.
23. Sensitivity Analysis
Sensitivity analysis tests how the feasibility changes when major assumptions move against the project.
Common sensitivities include:
GRV falls by 5%, 10% or more;
construction costs rise by 5%, 7.5% or 10%;
interest rates increase;
the project is delayed by three, six or twelve months;
sales settle more slowly;
the capitalisation rate softens for a hold project;
rental income is lower;
tenant incentives are higher;
presales fail to settle; and
several adverse events occur together.
Single-variable sensitivities are useful, but combined downside scenarios are more realistic.
A project rarely experiences only one isolated problem. A construction delay can increase interest, postpone settlements and expose the project to a weaker sales market at the same time.
Worked Example: A $27.5 Million Townhouse Development
Assume a developer is assessing a townhouse project with the following base-case feasibility.
Revenue
25 completed townhouses
Average sale price: $1,100,000
GRV: $27,500,000
Costs
Land and acquisition costs: $4,800,000
Construction and external works: $13,000,000
Consultants, approvals and statutory costs: $1,450,000
Marketing and selling costs: $1,050,000
Finance costs and lender fees: $1,300,000
Contingency and other costs: $400,000
TDC: $22,000,000
Base-case profit
$27,500,000 - $22,000,000 = $5,500,000
Base-case profit on cost
$5,500,000 / $22,000,000 = 25.0%
Base-case profit on revenue
$5,500,000 / $27,500,000 = 20.0%
Illustrative senior facility
Assume the lender offers a maximum facility of $15,400,000.
LTC
$15,400,000 / $22,000,000 = 70.0%
Loan to GRV
$15,400,000 / $27,500,000 = 56.0%
Headline equity gap
$22,000,000 - $15,400,000 = $6,600,000
The actual equity requirement may be higher if some costs are excluded, if interest sits outside the facility, if the lender recognises a lower TDC or if additional liquidity is required.
Sensitivity 1: GRV falls by 5%
Revised GRV:
$27,500,000 x 95% = $26,125,000
Revised profit:
$26,125,000 - $22,000,000 = $4,125,000
Revised profit on cost:
$4,125,000 / $22,000,000 = 18.75%
A relatively modest value reduction cuts profit by 25%.
Sensitivity 2: Construction cost rises by 7.5%
Assume the increase applies to the $13 million construction and external-works budget.
Additional cost:
$13,000,000 x 7.5% = $975,000
Revised TDC:
$22,000,000 + $975,000 = $22,975,000
Revised profit:
$27,500,000 - $22,975,000 = $4,525,000
Revised profit on cost:
$4,525,000 / $22,975,000 = approximately 19.7%
Sensitivity 3: Six-month delay
Assume the delay adds $450,000 in interest, holding and project costs.
Revised TDC:
$22,450,000
Revised profit:
$5,050,000
The dollar impact appears manageable in isolation, but the delay also lowers IRR and may cause the facility to exceed its original expiry date.
“The metrics tell you whether the deal survives contact with a lender.”
— The Australian Property Development Handbook
Combined downside case
Assume:
GRV falls by 5%;
construction costs increase by $975,000; and
delay costs add $450,000.
Revised GRV: $26,125,000
Revised TDC: $23,425,000
Revised profit: $2,700,000
Revised profit on cost:
$2,700,000 / $23,425,000 = approximately 11.5%
The project remains profitable, but most of the original buffer has been consumed.
The lender would then consider whether:
the facility remains within agreed LTC and LVR limits;
the project remains fully funded;
the developer can contribute additional equity;
presales still cover the required debt amount;
extension options exist; and
the sponsor has enough liquidity to complete and sell the project.
This is why lenders analyse the interaction between metrics rather than relying on the base-case profit margin.
How Metrics Differ by Development Type
Residential apartments and townhouses
Lenders generally focus on GRV, presales, settlement risk, construction cost, peak debt, cost to complete and the post-completion sales period.
The product mix and buyer profile can be as important as the total presale value.
Land subdivisions
Subdivision feasibility places greater emphasis on civil costs, approval conditions, stage sequencing, title timing, lot-release rates and lender release prices.
The cash flow must show how early lot settlements reduce debt and help fund later stages.
Industrial and commercial strata
Lenders assess sales evidence, leasing assumptions, tenant demand, construction costs and the depth of the investor market.
Where units may be retained, both sell-down and refinance metrics should be tested.
Build-to-hold projects
The lender will assess development metrics during construction and investment metrics at completion.
These may include stabilised value, net operating income, capitalisation rate, debt yield, DSCR and refinance LVR.
Service stations and childcare centres
The operator or tenant covenant, lease terms, rent, incentives, fit-out responsibilities, planning conditions and completed investment value can be central.
A project may have strong construction economics but weak refinanceability if the lease or operator does not support the assumed valuation.
Mixed-use developments
Mixed-use projects require separate assumptions for each component.
Residential, retail, office, hospitality and specialised uses may have different valuation methods, sales periods, leasing risks and funding appetites.
A blended GRV can conceal weakness in one component, so lenders may analyse each use independently.
Which Metrics Matter Most to the Lender?
The answer changes throughout the project.
At acquisition or planning stage
The lender may focus on:
land value and existing debt;
planning risk;
sponsor equity;
holding costs;
residual land value;
approval timeline; and
the exit if approval is not obtained.
At construction approval
The focus shifts to:
approved GRV;
fixed and remaining costs;
building contract;
builder capability;
quantity-surveyor assessment;
presales;
LTC and LVR;
peak debt;
equity contribution;
contingency; and
cost to complete.
During construction
The lender monitors:
progress against program;
approved costs;
variations;
contingency usage;
sales and settlement status;
interest reserve;
cost to complete;
covenant compliance; and
sponsor liquidity.
At completion and sell-down
The focus moves to:
practical completion and titles;
defect and retention obligations;
settlement timing;
unsold stock;
achieved prices;
lender release prices;
residual debt;
extension requirements; and
refinance options.
No single ratio remains sufficient throughout the facility term.
Common Feasibility Mistakes That Concern Lenders
Using unsupported sales rates
A feasibility should be supported by comparable evidence, not only asking prices or optimistic agent opinions.
Ignoring GST consistency
Revenue, costs, debt and tax assumptions should be modelled on a consistent basis. Mixing GST-inclusive revenue with GST-exclusive costs can distort profit and funding requirements.
Leaving out finance and selling costs
The project may appear profitable before the costs required to fund and realise the profit are included.
Running your own numbers?
Open the feasibility calculators →Assuming all stock settles at completion
This understates interest and peak debt and ignores buyer settlement risk.
Using the facility limit instead of the projected balance
The feasibility should distinguish total commitment, peak debt, undrawn contingency and net debt after settlements.
Treating contingency as profit
Unused contingency may ultimately improve profit, but it should not be removed from the base funding requirement simply to make the margin look stronger.
Double counting equity
Land value uplift, cash already spent, deposits and future development fees can be counted incorrectly if the source-and-use schedule is not reconciled.
Ignoring pre-construction timing
Planning, documentation, presales and lender approval often take longer than expected. Holding and escalation costs should reflect a realistic start date.
Failing to model the downside
A project with no sensitivity analysis suggests the developer has not considered how adverse events affect funding and repayment.
Presenting inconsistent documents
The feasibility, valuation, building contract, quantity-surveyor report, sales schedule and funding request should all reconcile.
How to Improve a Development Feasibility Before Approaching Lenders
1. Reconcile every major assumption
The unit schedule should reconcile to the valuation. The construction budget should reconcile to the builder and quantity surveyor. The loan request should reconcile to the cash flow.
2. Separate committed and uncommitted costs
Identify which costs are fixed, contracted, quoted, provisional or estimated.
3. Show the monthly cash flow
The model should show equity contributions, lender drawdowns, interest, presale receipts, settlements and peak debt over time.
4. Include a clear source-and-use schedule
The lender should be able to see exactly where every dollar comes from and how it will be applied.
5. State the calculation method
Show the formulas for LTC, LVR, profit margin, IRR, MOIC and presale coverage. Do not rely on labels alone.
6. Use realistic timing
Allow for approval, documentation, mobilisation, construction, titles, settlement and a post-completion sales period.
7. Include credible sensitivities
Test values, costs, delays, sales rates and interest assumptions separately and together.
8. Demonstrate additional liquidity
Show what resources remain available after the initial equity contribution and how overruns would be funded.
“Margin on cost is the number that tells the truth.”
— The Australian Property Development Handbook
9. Explain unusual assumptions
If the project relies on premium pricing, low construction costs, rapid sales or a sharp valuation uplift, provide evidence.
10. Keep the model readable
A lender should be able to trace the main assumptions without navigating a confusing workbook containing unexplained hard-coded figures.
Development Feasibility Checklist
Before submitting a project to a lender, confirm that the feasibility includes:
Project details
site address and ownership;
proposed development and staging;
planning status;
project program;
development entity and sponsor details; and
proposed exit strategy.
Revenue
unit, lot or tenancy schedule;
expected selling prices or rents;
valuation support;
presale and leasing status;
incentives, commissions and GST assumptions; and
sales and settlement timing.
Costs
acquisition and stamp-duty costs;
consultant and authority costs;
construction and civil costs;
external works and fit-out;
escalation and contingency;
marketing and selling costs;
finance costs;
tax and GST treatment; and
cost already paid versus cost remaining.
Funding
existing debt;
proposed facility amount;
senior, mezzanine and equity components;
timing of equity contributions;
capitalised interest;
peak debt;
liquidity reserve; and
cost-to-complete calculation.
Metrics
GRV or completed value;
TDC;
development profit;
profit on cost;
profit on revenue;
LTC;
LVR;
presale debt coverage;
IRR;
MOIC or equity multiple;
debt yield and DSCR for a hold strategy; and
downside sensitivities.
Supporting documents
development approval and conditions;
architectural and engineering documentation;
valuation;
quantity-surveyor report;
building contract or tender;
builder information;
presale contracts or sales schedule;
leasing evidence;
sponsor financial information; and
evidence of equity.
Frequently Asked Questions
What is the most important development feasibility metric?
There is no single most important metric. Lenders usually consider profitability, LTC, LVR, equity, peak debt, cost to complete, contingency, presales and sensitivity outcomes together. The importance of each metric changes with the project type and stage.
What is a good profit margin for a property development?
There is no universal percentage that guarantees finance approval. The appropriate margin depends on project duration, risk, leverage, presales, sponsor experience, location and lender appetite. A lender will also test the margin after adjusting revenue, costs and timing.
What is the difference between profit on cost and profit on revenue?
Profit on cost divides profit by TDC. Profit on revenue divides profit by GRV. Profit on revenue is lower for the same project because GRV is the larger denominator.
What is the difference between LTC and LVR?
LTC compares the loan with recognised project cost. LVR compares the loan with the value of the security or completed project. A facility usually needs to satisfy both measures.
These principles come from our free guide.
Download the handbook →Does land equity count toward the developer's contribution?
It may, subject to valuation, existing debt, acquisition history and lender policy. The recognised amount may be based on cost, current value or the lower of the two. Land equity does not necessarily replace the need for cash liquidity.
Do lenders include capitalised interest in LTC?
Some do, while others distinguish gross and net LTC or apply separate limits. The term sheet and funding model should show the exact numerator and denominator.
What is peak debt?
Peak debt is the highest forecast loan balance during the project. It is determined by the timing of costs, drawdowns, interest and sale proceeds.
What is cost to complete?
Cost to complete is the amount required to finish the project from the assessment date. Lenders compare it with undrawn debt and remaining committed equity to ensure the project remains fully funded.
Why do lenders require a contingency?
A contingency provides a buffer for uncertain or unexpected costs. The required amount depends on design completeness, contract type, project risk and the quantity surveyor's assessment.
Are presales always required?
No. Requirements vary by lender, project type, leverage, location, sponsor and market conditions. Where presales are required, lenders assess their quality as well as their value.
What is the difference between IRR and MOIC?
IRR accounts for the timing of cash flows. MOIC compares total distributions with invested capital but does not account for time. They are often used together when assessing equity returns.
Is debt yield relevant to a residential sell-down project?
Usually less so. Debt yield is primarily relevant to income-producing assets and refinance strategies. Sell-down developments are more commonly assessed using GRV, presales, LTC, LVR, profit margin and cost to complete.
Should a feasibility include GST?
It should clearly and consistently model GST and tax timing in a manner appropriate to the project and entity. Developers should obtain tax advice rather than relying on a generic assumption.
How often should the feasibility be updated?
It should be updated whenever material assumptions change and regularly during the project. Costs, sales, timing, interest and debt balances should be reconciled against actual results.
Can a profitable project still be declined?
Yes. A project may be profitable but still have insufficient equity, weak liquidity, inadequate presales, an unacceptable builder, planning risk, an unfunded cost-to-complete position or a poor exit strategy.
Final Thoughts
A strong property development feasibility is not simply a spreadsheet showing a profit.
It is an integrated model of value, cost, time, debt, equity and risk.
Lenders examine GRV and TDC, but they also need to understand when money is required, how much debt will be outstanding, how the project will be completed, what equity remains available and how repayment will occur if the base case changes.
The most persuasive feasibility models are transparent. They reconcile to the supporting documents, explain the assumptions and demonstrate that the sponsor has considered both the upside and the downside.
A developer who understands the interaction between profit margin, LTC, LVR, peak debt, cost to complete, contingency, presales, IRR, MOIC and refinance metrics is better placed to structure the project before approaching capital providers.
That can improve the quality of the funding submission, reduce avoidable delays and help identify problems while there is still time to change the project or capital structure.
How BluCow Capital Can Help
We can help developers:
review and normalise a development feasibility;
calculate GRV, TDC, LTC, LVR, peak debt and the genuine equity requirement;
test profit margins, IRR, MOIC and downside scenarios;
assess presale and refinance requirements;
identify funding gaps and cost-to-complete risks;
compare alternative capital structures;
prepare a coherent lender funding submission; and
approach capital providers suited to the project, sponsor and exit strategy.
To discuss the feasibility and funding structure for an upcoming property development, contact BluCow Capital or submit an enquiry through blucowcapital.com.au.
Disclaimer
This article provides general information only and does not constitute financial, legal, tax, investment, accounting, valuation or credit advice. Development feasibility methods, lender calculations, valuation assumptions and finance policies vary between projects and capital providers. All examples are simplified and illustrative. Developers should obtain advice appropriate to their circumstances and independently verify all revenue, cost, tax, planning, construction, valuation and funding assumptions before acquiring a site, raising capital or entering into a finance transaction.