Grand Ocean Financial Services, Sydney (2026)

Our mission is to help people understand and navigate the complex process of buying or refinancing a property. We help clients secure the necessary financing for one of life’s most significant purchases. We are committed to easing your concerns and addressing all of your mortgage needs. We provide personalized guidance and direction regarding a variety of financing options, empowering you with the

knowledge and resources you need. Get in touch today to start making smarter choices regarding mortgages.

31/12/2025

Happy New Year from Grand Ocean Financial Services!

As we welcome 2026, we sincerely thank our clients and referral partners for your trust and the opportunity to support your investment and business goals.

2025 was a year of remarkable growth — from increased business activity to the launch of our Assets and Equipment Finance service, alongside continued investment in our people and systems. These achievements position us to deliver even greater value in the year ahead, with new initiatives and enhanced services planned.

Looking forward, we are excited to introduce a range of new initiatives and service enhancements designed to further empower our clients in achieving their strategic objectives, and continue to deliver the exceptional service and insights that define the GOFS experience.

From all of us at Grand Ocean Financial Services, we wish you and your family a prosperous, successful, and rewarding New Year in 2026.

— Grand Ocean Financial Services Management Team

Terrence Sum (Chinese speaking)
📱 0433 102 078
✉️ [email protected]

Abdul Ahmed (Arabic speaking)
📱 0402 532 767
✉️ [email protected]

23/04/2025

This week, we will talk about the land tax implications associated with an investor acquiring an investment property through Personal Name, Family Trust, and Unit Trust structures. I hope you find this informative! 😎

Often when an investor come to us to discuss their investment portfolio strcutures and strategies around wealth creation, there tends to be a lack of attention paid to the land tax costs related to property ownership, regardless of whether it is residential or commercial.

It is important to understand that land tax thresholds and rates vary by state and depend on the ownership structure of the property. Here's an overview of how land tax applies to personal ownership, family trusts, and unit trusts as of 2025:

1. Personal Ownership:
Land Tax Thresholds: In most states, personal ownership of land comes with a threshold that exempts land tax if the land's value is below the threshold. If the land value exceeds the threshold, land tax is applied to the value above the threshold.
Tax Calculation: The rates typically increase progressively based on the land's taxable value. The more valuable the land, the higher the rate of tax applied on the value exceeding the threshold.

Example (NSW): If you own land valued at $1.2 million and the threshold is $1.075 million, the taxable value would be $125,000. For a land tax rate of 1.6%, the tax payable would be calculated on that $125,000, which would result in $2,000 in land tax.

Exemptions: There are also exemptions for primary places of residence, meaning if the land is your main home, it may not be taxed.

Land Tax thresholds per state: (Correct to December 2025)

NSW: $1,075,000 (Only land above threshold taxed. Principal place of residence (your home) is exempt.)
VIC: $300,000 (Applies if total taxable land value > $300,000.)
QLD: $600,000 (Total taxable land value above $600k. Home (PPOR) generally exempt.)
SA: $482,000 (Aggregated land holdings considered.)
WA: $300,000 (Residential land threshold. Different rates apply for different land types.)
TAS: $50,000 (Very low threshold! Land tax hits quickly here if investing.)
ACT: No tax-free threshold (Land tax applies to all rental properties from the first dollar. No exemption threshold.)
NT: No land tax at all (NT does not charge land tax)

2. Family Trusts:
Family Trusts and Land Tax: A family trust (a discretionary trust where the trustee has discretion over distributing income or capital to beneficiaries) may be liable for land tax depending on the taxable value of the land and the ownership structure. Generally, trusts are not entitled to the same land tax thresholds as individuals.
Thresholds for Family Trusts: In some states, family trusts have a lower threshold than individual ownership. For example, in Victoria, land tax thresholds for family trusts are typically lower than those for individuals.

Example (Victoria):

If the taxable value of land in a family trust is $500,000, land tax may be applicable even though an individual with similar land value would not incur land tax. The tax rate in trusts can be higher than that for individuals.
Special Considerations: Some states may have specific concessions or exemptions for certain types of trusts. For example, if a trust is a "fixed" trust (where beneficiaries have a set entitlement), it may be treated differently.

Land Tax thresholds per state: (Correct to December 2025)

NSW: $0 (Can nominate a beneficiary to access threshold, but it "locks" the trust. Otherwise taxed from the first dollar at special trust rate).
VIC: $0 (No threshold. Land tax applies from $0.)
QLD: $0 (No threshold unless a fixed trust.)
SA: $482,000 (Family trusts still access the individual threshold, it is considered more trust-friendly.)
WA: $0 (No threshold. Trusts pay land tax from $0.)
TAS: $25,000 (Lower trust threshold than personal names of $50,000 for individuals).
ACT: No general threshold (Land tax based on property use, rental = taxed, owner-occupier = exempt).
NT: No land tax (No land tax at all for any ownership structure.)

3. Unit Trusts:
Unit Trusts: A unit trust holds land for the benefit of unit holders, and each unit holder's share of the trust corresponds to their proportionate share of the trust’s land. Unit trusts are generally subject to land tax at a higher rate than individuals or family trusts because they may be considered as commercial holdings.

Example:

If a unit trust holds land worth $1 million and the unit holders are considered to own fixed entitlements, the land tax could be assessed higher compared to an individual or a family trust, as unit trusts may not receive the same exemptions or thresholds.
Surcharge for Trusts: Most states apply a "trust surcharge" for unit trusts, which increases the tax rate applied to the value of the land. This surcharge can make owning land in a unit trust less favorable from a land tax perspective. In some states like NSW and Victoria, the tax rate is increased significantly for trusts compared to personal ownership.

Land Tax thresholds per state: (Correct to December 2025)

NSW: $1,075,000 per person/Unit holder (Only if the unit trust is truly "fixed" and satisfies Revenue NSW criteria. Otherwise, taxed from $0.)
VIC: $300,000 per unit holder (If unit trust is fixed. Threshold much lower than NSW. Non-fixed trusts pay from $0.)
QLD: $600,000 per unit holder (Fixed trusts treated as transparent, unit holders can access thresholds. Non-fixed: taxed from $0.)
SA: $482,000 (Unit holders can apply thresholds if trust is fixed. Otherwise taxed from $0.)
WA: No threshold for trusts (In WA, all trusts are taxed from $0 unless structured very specifically)
TAS: $50,000 (Fixed unit trust may allow apportionment to unit holders.)
ACT: No general land tax threshold (Land tax applies to all investment properties due to ongoing leasehold system).
NT: No land tax at all (Northern Territory has no land tax!)

4. Land Tax Rates and Additional Charges:
Progressive Tax Rates: In many states, land tax is progressive, meaning the tax increases as the value of the land rises. This system can result in a substantial land tax liability for high-value properties.
Trust Surcharge: Trusts, including family trusts and unit trusts, may face a higher tax rate or surcharge compared to individual owners. For example, in some states, trusts are subject to a 1-2% surcharge depending on the value of the land.
Corporate Trusts and Larger Holdings: In the case of corporate or larger unit trusts (those that hold large portfolios of properties), land tax becomes particularly important, as the tax liabilities can add up significantly with a large amount of land under management.

5. State-Specific Variations:
Different states have their own rules, thresholds, and rates for land tax. For instance:

NSW tends to have relatively high thresholds for individuals but charges higher rates for trusts.
Victoria may apply higher rates to family trusts but still offers some relief depending on the specific circumstances of the trust and the property.
Queensland and South Australia also offer similar progressive systems but with varying exemptions and rates for different types of ownership.

In Summary:
Land tax in Australia varies greatly depending on the state, the type of landholding structure, and the value of the land. While personal ownership benefits from higher thresholds in many states, trusts (both family and unit) often face higher rates or surcharges. Always consider consulting a property tax expert or a legal advisor to understand how best to structure land ownership, especially when dealing with trusts, to optimize tax liabilities and meet regulatory requirements.

If you're considering using a trust structure, make sure you’re aware of how land tax works specifically in your state and consult with a tax advisor to assess the most effective way to manage your property portfolio.

References:
https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties/land-tax

https://qro.qld.gov.au/land-tax/

https://www.sro.vic.gov.au/land-tax

https://www.revenuesa.sa.gov.au/land-tax

https://www.wa.gov.au/organisation/department-of-finance/land-tax-assessment

https://www.sro.tas.gov.au/land-tax/rates-of-land-tax

https://www.revenue.act.gov.au/land-tax

https://nt.gov.au/property/land/buying-and-selling-land/land-taxes

Terrence Sum

Managing Director & Principal Mortgage Adviser at Grand Ocean Financial Services

[email protected]

0433102078

DISCLAIMER:

The information provided in this article is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

The author is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of the information.

08/04/2025

This week's article is a bit heavy, as we will discuss what happens to a mortgage when the owner passes away. I felt compelled to write about this after receiving a call from one of my clients, who informed me of his father's passing and sought clarity on the mortgage situation.

Therefore, I would like to gather and share this information for everyone’s benefit. I hope you find this article helpful. ❤️

An old saying goes that there are two certainties in life: death and taxes. While discussions about death are often uncomfortable, it is an inevitable part of life that we must confront.

Therefore, it is crucial to understand the financial implications for a family when a homeowner with an outstanding mortgage passes away.

This article will explore various options for repaying the loan and examine different scenarios that may arise if the loan cannot be settled or if another party is unwilling to assume responsibility for it. There are several important factors need to be considered in such situations:

1. Mortgage Protection Insurance:
Some home loans are paired with mortgage protection insurance or life insurance that covers the remaining balance if the borrower passes away. This insurance is optional but can be a lifesaver for families.

What it covers: It usually covers the outstanding balance of the loan, which means the surviving family members won’t have to continue making payments or sell the property.
Claims process: The family or the estate must notify the insurance provider of the death and submit necessary documentation (such as the death certificate) to file a claim.
Exceptions: Mortgage insurance may have exclusions, such as pre-existing health conditions or certain types of death (e.g., su***de within a specified period). It's essential to check the policy’s details.

2. Joint Home Loans:
If the deceased person had a joint home loan (e.g., with a spouse or partner), the surviving borrower typically takes on the responsibility for repaying the loan.

What happens next: The surviving borrower continues making mortgage payments on their own. The lender may require the surviving borrower to confirm their ability to continue servicing the loan.
Refinancing: If the surviving borrower is unable to maintain the loan due to financial strain, they might be able to refinance it in their name alone, especially if the joint borrower was a partner or spouse.

3. Single Borrower (Sole Home Loan):
If the home loan was solely in the deceased person’s name, the responsibility to repay the loan falls to the estate. The executor of the estate will handle the deceased’s affairs.

Executor's Role: The executor is responsible for ensuring all debts are paid, including the mortgage, before distributing any remaining assets to the beneficiaries.
Paying off the loan: If there are sufficient funds in the estate, the loan will be paid off from those assets. If not, the executor may need to sell the property to pay the mortgage.
Impact on Beneficiaries: If the home is sold, the proceeds go towards paying off the loan, and any remaining amount will be distributed to the beneficiaries. If the property’s sale doesn’t cover the full loan balance (a negative equity situation), the shortfall is still part of the estate's liabilities.

4. Selling the Property:
If the estate cannot afford to repay the home loan, or if the beneficiaries cannot or do not wish to take on the mortgage, the lender may initiate foreclosure or the property may need to be sold voluntarily.

Selling to pay off the loan: The executor or beneficiaries can sell the property themselves to pay off the debt. The property must be sold for a value that covers the loan, but if it doesn't, the remaining debt becomes part of the estate’s obligations.
Lender’s rights: The lender may initiate legal action (such as repossession) if they are not paid, but this is typically a last resort.

5. What Happens to the Property if the Loan Cannot Be Paid?:
If the mortgage isn’t covered by the estate, and the beneficiaries do not want to take over the loan or cannot afford to, the property may be sold. In the case of negative equity (where the loan balance exceeds the property value), the lender will still seek repayment of the outstanding balance, which may mean the estate has to cover the difference.

Inheritance of debt: Beneficiaries do not inherit the debt unless they choose to take on the loan. If they choose to keep the property, they must be able to continue making the payments. Otherwise, the estate is responsible for managing the loan and may have to sell the property to resolve it.

6. Notifying the Lender and Other Financial Institutions:
It’s crucial to notify the lender about the death of the borrower. The lender will provide instructions on how to proceed, including any immediate steps (e.g., pausing repayments temporarily) or documentation needed to close the loan.

7. Dealing with the Estate:
The deceased person's estate (all their assets and liabilities) will be managed by the executor, who will typically be a family member, friend, or professional. The executor must:

Gather the assets and debts.
Pay any outstanding debts, including the mortgage.
Transfer the ownership of property to the beneficiaries after debts are settled.

8. What if the Beneficiaries Want to Keep the Home?
If the beneficiaries wish to keep the property, they may have options to take over the home loan or refinance it.

Refinancing: The surviving family member can apply to the lender to refinance the mortgage into their own name. The lender will assess their financial capacity to ensure they can make the repayments.
Transfer of Ownership: If there’s a surviving spouse or partner, they may simply take over the loan, assuming they qualify financially to continue the payments.

9. Potential Complications:
There can be additional complications in these situations, such as:

Estate complexity: If the estate is complex or has multiple debts, the process of selling property or distributing assets can take time (up to a year or more).
Family disagreements: In some cases, family members or beneficiaries may disagree about how to handle the property or estate, which can cause delays.
Legal complications: If the deceased had multiple properties, loans, or outstanding debts, it might complicate the estate administration. A solicitor can help guide the executor through the process.

In Summary:
The fate of a home loan after an individual passes away is influenced by several factors, including whether the loan is held jointly, the presence of mortgage insurance, and the estate's or beneficiaries' capacity to settle the mortgage.

The executor plays a crucial role in managing the estate, informing the lender, and determining if the debt can be paid off or if the property must be sold.

Beneficiaries interested in retaining the home can collaborate with the lender to explore their options for assuming the loan.

If you find yourself in this situation, it is advisable to consult with a solicitor and a financial advisor to effectively navigate the legal and financial considerations involved.

Referrence:
https://www.legalaid.nsw.gov.au/my-problem-is-about/someone-who-died/wills-and-estates/what-to-do-with-the-estate/what-are-assets-and-debts -3fd6694fb0-item-23375f2dd1

https://www.ratecity.com.au/home-loans/articles/happens-home-loan-when-someone-dies

https://www.ato.gov.au/individuals-and-families/deceased-estates/checklist-what-to-do-when-someone-dies

Terrence Sum

Managing Director & Principal Mortgage Adviser at Grand Ocean Financial Services

[email protected]

0433102078

DISCLAIMER:

The information provided in this article is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

The author is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of the information.

02/04/2025

There has been a growing interest regarding the use of a trust for asset holding instead of acquiring assets in an individual's name.

In this week's article, I will not delve into the effect of a trust on your borrowing capacity.

Instead, I will focus on the features, costs, and benefits of purchasing through a trust compared to doing so in a personal name. I hope you find the article informative.

When buying an investment property, purchasing through a Trust versus in your personal name has significant differences in terms of tax implications, asset protection, financing, and estate planning. Here’s a breakdown:

1. Liability & Asset Protection
Trust: If you own property through a trust, your personal assets are generally protected from lawsuits and creditors. This is useful if you are in a high-risk profession (e.g., a doctor, lawyer, or business owner).
Personal Name: If you own the property in your name, creditors can claim it if you face personal financial difficulties or legal action.
However, banks often require personal guarantees when lending to a trust, which can limit asset protection.

👉 Best for: Those wanting strong asset protection, especially if running a business.

2. Taxation on Rental Income
Trust: The rental income from the property can be distributed among beneficiaries of the trust, potentially reducing the overall tax burden. If the trust retains income, it is taxed at the highest marginal rate (e.g., 45% in Australia). Beneficiaries pay tax based on their marginal rates (e.g., if a lower-income beneficiary receives the income, they pay less tax).
Personal Name: The rental income is taxed at your individual income tax rate. If you are in a high tax bracket, you may pay more tax on the income. You can claim deductions on expenses, depreciation, and interest costs against your personal income.

💡 Example: If a trust earns $100,000 in rental income, it can distribute:

$30,000 to a spouse (taxed at 19%)
$40,000 to a child at university (taxed at 0% if under the tax-free threshold)
$30,000 to a company entity (taxed at 25-30% instead of a high personal rate)

👉 Best for: Those wanting to distribute rental income to lower-income family members (trust) or investors with a low personal tax rate (personal name).

3. Capital Gains Tax (CGT)
Trust: If the property is sold after 12 months, the trust may be eligible for the 50% CGT discount (in Australia) when the gain is distributed to individual beneficiaries. If the trust is a company, it won’t qualify for the discount.
Personal Name: If you hold the property for more than 12 months, you also get the 50% CGT discount. If you are in a lower tax bracket at the time of sale, you might pay less tax compared to a trust.

💡 Example: You buy a property for $1M, and 5 years later, sell it for $1.5M (a $500K gain).

In Personal Name, you only pay tax on $250K of the gain (after the 50% discount).
In a Discretionary Trust, the gain can be distributed to lower-taxed beneficiaries, minimizing CGT further.

👉 Best for: Long-term investors planning to sell and distribute gains to lower-taxed beneficiaries (trust) or individuals in a lower tax bracket at sale (personal name).

4. Land Tax Considerations
Trust: Some states/countries charge higher land tax rates for properties held in trusts. Certain trusts (like unit trusts or fixed trusts) may be able to access lower land tax thresholds.
Personal Name: May qualify for standard land tax rates, which can be lower.

💡 Example:In NSW, land tax thresholds apply to individuals, but trusts typically pay a higher fixed rate.

👉 Best for: Those wanting lower land tax exposure (personal name). Always check local laws.

5. Estate Planning & Succession
Trust: The property remains within the trust when you pass away, avoiding probate. It can be passed down to future generations without triggering capital gains tax or stamp duty. You can structure it to provide ongoing income to beneficiaries.
Personal Name: The property forms part of your estate. If you pass away, it may go through probate and could be subject to disputes or additional taxes. Transferring the property to heirs may trigger CGT and stamp duty.

👉 Best for: Those wanting smooth estate planning and tax-efficient inheritance (trust).

6. Ongoing Costs & Complexity
Trust: Higher setup costs (e.g., legal fees to establish the trust). Ongoing compliance costs (trust tax returns, accounting, legal maintenance). Requires proper record-keeping to avoid tax issues.
Personal Name: Simpler and cheaper to set up. Fewer ongoing costs. Easier to manage tax and legal compliance.

👉 Best for: Those who prefer a simple and low-cost ownership structure (personal name).

Which Option Should You Choose?

Buy in a Trust if:

✅ You want asset protection.

✅ You plan to distribute rental income or capital gains among family members.

✅ You want smooth succession planning for future generations.

Buy in Personal Name if:

✅ You want an easier and cheaper structure with minimal compliance.

✅ You need better loan terms and borrowing power.

✅ You are not concerned about asset protection or succession planning.

In Summary:
Buying in a Trust
A trust offers strong asset protection, as the property is legally owned by the trust, shielding it from personal creditors and lawsuits. It also provides tax flexibility, allowing income and capital gains to be distributed among beneficiaries in lower tax brackets, reducing overall tax liability. Additionally, trusts ensure seamless estate planning, as the property remains within the trust structure, avoiding probate and inheritance disputes.

However, trusts come with higher costs and complexity, requiring legal setup, trust deeds, and ongoing tax filings. Financing can also be more restrictive, with banks often demanding personal guarantees and financing can be tricky. Furthermore, trusts may face higher land tax rates in some states, as they are often excluded from tax-free thresholds.

Buying in Personal Name
Purchasing in a personal name is simple and cost-effective, as there are no legal setup costs or ongoing trust administration. Financing is also easier, with banks offering higher LVRs and better loan terms. Additionally, individuals may benefit from land tax-free thresholds, which can significantly reduce tax costs over time.

However, personal ownership comes with higher risks, as the property is exposed to personal creditors and legal claims. Taxation is also less flexible, as rental income and capital gains are taxed at personal rates with no option for income distribution. Estate planning can also be a concern, as the property forms part of your estate, leading to probate delays and potential disputes among beneficiaries.

References:

https://www.ato.gov.au/businesses-and-organisations/trusts

https://www.ato.gov.au/individuals-and-families

https://www.lawsociety.com.au/for-the-public/know-your-rights/trust/how-trust-works

Terrence Sum

Managing Director & Principal Mortgage Adviser at Grand Ocean Financial Services

[email protected]

0433102078

DISCLAIMER:

The information provided in this article is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

The author is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of the information.

20/03/2025

This week, we’ll explore the ins and outs of property development financing and highlight the key steps that developers should keep in mind when seeking a development loan. Enjoy the read! 😎

Property development lending in Australia involves securing finance to fund residential, commercial, or mixed-use property projects. Lenders—ranging from major banks to private financiers—offer different types of loans based on the project’s size, risk, and stage. Let us now explore the various development funding alternatives and the essential steps that developers must undertake when evaluating a development project:

Key Players in Property Development Lending:

1. Banks and Financial Institutions: Australian banks like ANZ, Westpac, Commonwealth Bank, and NAB are the traditional lenders for property developers. These institutions offer competitive interest rates but require developers to meet stringent lending criteria. Banks may focus on large-scale developments and more experienced developers, as their criteria tend to be more conservative.

2. Non-Bank Lenders: Non-bank lenders such as Macquarie Bank, Pepper Money, or private lending firms play an important role, especially for smaller developers or those who don’t meet traditional bank criteria. They may offer more flexible terms, faster approval processes, and less stringent requirements but in return, they charge higher interest rates to compensate for the additional risk.

3. Private Equity and Venture Capital: Private investors, venture capitalists, or equity firms often provide funds for developers through joint ventures or equity funding arrangements. This can be an essential source of capital if the developer lacks sufficient equity or is looking to reduce their debt burden. These arrangements often involve the private investor sharing in the profits once the development is sold or leased.

Stages of Property Development Financing:

The process of securing a property development loan typically follows several stages, each with its own set of requirements:

1. Pre-Development/Feasibility Stage: Feasibility Study: A comprehensive analysis of the project's potential, including market research, location analysis, costs, expected returns, and development timeline.

2. Financial Modelling: Involves creating cash flow forecasts, profitability assessments, and loan structuring. Lenders will request detailed information on these models to evaluate project risk and potential returns.

3. Loan Application: The developer submits their loan application to a bank or lender with all relevant documentation, including development plans, budget, projected sales/rental income, and any zoning or planning approvals.

4. Development Stage: Progressive Drawdowns: As construction proceeds, the developer draws down funds from the loan in stages, typically after certain milestones (e.g., foundation completion, framing, roofing). Lenders will often send inspectors to verify that the project is on track before funds are released.

5. Interest Payments: During the development stage, developers are often required to make interest-only repayments on the loan to minimize cash flow strain. Interest is charged on the drawn-down portion of the loan, not the full amount.

6. Completion Stage: Sale or Leasing: Once the property is completed, the developer aims to sell the developed property or lease it to tenants. The proceeds from the sale or rental income are used to repay the loan.

7. Final Loan Repayment: If the property sells successfully, the developer repays the loan in full. If the property is leased, a long-term commercial loan or refinancing might be arranged to pay off the development loan.

Loan Terms and Conditions:

Lenders have specific criteria for property development loans, including:

1. Loan-to-Value Ratio (LVR): As mentioned, lenders generally offer LVRs of 60-70% for property development loans. This means the developer must contribute the remaining 30-40% through their own equity or mezzanine financing. The LVR is typically calculated on the projected "as completed" value of the property (the value it will have once the development is completed).

2. Interest Rates: Interest rates for property development loans are higher than standard home loans due to the increased risk involved. Typically, rates range from 5-10% p.a., depending on the project’s complexity and the developer's experience. Developers may be charged a higher interest rate if the project involves significant risk, such as developments in less-established areas or speculative developments.

3. Fees: Developers should budget for additional fees including application fees, valuation fees, legal fees, and potentially, project management fees. These can add up quickly and affect the overall cost of the project.

4. Exit Strategy: Pre-sales/Pre-leases: Lenders often prefer that the developer secures some level of pre-sales or pre-leases before the loan is approved. This provides assurance that the development will generate enough income to repay the loan.

5. Contingency Plans: Developers must be ready with contingency plans in case things don’t go as expected, such as unexpected construction costs or delays in sales. Lenders will want to know how the developer plans to handle these potential risks.

Risks in Property Development Lending:

1. Market Fluctuations: Property values can be volatile, and external factors like economic downturns, changes in interest rates, or shifts in demand can impact the profitability of the development.

2. Delays and Cost Overruns: Construction projects often run into issues such as delayed approvals, weather disruptions, or unforeseen costs, all of which can increase the risk of loan defaults.

3. Cash Flow Strain: Property developers must maintain a steady cash flow throughout the project. A lack of liquidity or delays in securing additional funding can cause difficulties, especially in larger projects.

Managing Risks:

1. Experienced Team: Working with a skilled team of professionals—including project managers, architects, contractors, and accountants—can help mitigate risks.

2. Diversifying Projects: Some developers manage risk by diversifying their portfolios across different property types, locations, and project scales.

3. Strong Financial Management: Maintaining good financial discipline, including detailed budgets and cash flow forecasts, helps developers avoid cash flow shortages and unplanned expenses.

Below is a list of quick reference guide and check points for developers to take note of when applying for a development loan:
Loan Approval & Assessment Criteria

Lenders assess several factors before approving development finance:

1. Loan-to-Value Ratio (LVR)

The percentage of the project's end value that can be borrowed.
Typically up to 70% of the Gross Realization Value (GRV).

2. Loan-to-Cost Ratio (LTC)

The percentage of total project costs covered by the loan.
Generally, lenders finance 70-80% of the total project cost.

3. Pre-Sales Requirement

Lenders often require developers to sell a percentage of units before funding is approved.
Typically, 50-100% of debt coverage in pre-sales is required.

4. Developer Track Record & Experience

Lenders prefer experienced developers with successful past projects.
First-time developers may face stricter conditions or require partners with experience.

5. Location & Market Demand

Projects in high-demand locations (major cities, growing suburbs) get easier approval.
Feasibility studies and market analysis help strengthen loan applications.

Loan Drawdowns (How Funds Are Released)

Development loans are not released all at once. Instead, funds are drawn down in stages as the project progresses:

Stage 1: Land Acquisition

Some lenders provide up to 60% of land value.
If development approval (DA) is in place, lenders may provide a higher LVR.

Stage 2: Pre-Development Costs

Covers design, planning, council approvals, and professional fees.
Some lenders may include these costs in the loan.

Stage 3: Construction

Loan funds are released progressively as construction milestones are met.
Developer submits invoices for completed work (progress draws).
Independent quantity surveyor (QS) reports are often required to verify work completion.

Stage 4: Completion & Exit

Once the project is finished, the developer must repay the loan.
Repayment options include: Selling units (settlements pay down the loan). Refinancing with a long-term investment loan. Retaining the project for rental income and refinancing.

Interest Rates & Fees

Typical Interest Rates

- Banks: 6-9% p.a.
- Non-bank lenders: 8-15% p.a.
- Mezzanine finance: 12-20% p.a.
- Private funding: rate can range from 8% to 9% all the way to 20% depending ont he risk profile

Fees

- Application & Establishment Fees (1-2% of the loan).
- Legal Fees (Varies by lender).
- Valuation Fees (Required for land and completed project).
- Exit Fees (Charged if repaid early).

Exit Strategies (How to Repay the Loan)

Lenders require a clear exit strategy before approving finance. Common exit strategies include:

- Selling units – Revenue from settlements repays the loan.
- Refinancing with a long-term loan – Common for commercial or rental projects.
- Retaining the development – Leasing and refinancing based on rental income.

Common Challenges & How to Overcome Them:

- Insufficient Equity

Solution: Use mezzanine finance, JV partners, or private investors.

- Lack of Pre-Sales

Solution: Offer discounts, engage experienced sales agents, or seek private lenders who do not require pre-sales.

- Delays in Approvals & Construction

Solution: Have contingency plans and buffer funds in the budget.

In Summary:

In essence, property development lending in Australia is about securing capital to fund the construction or redevelopment of property projects. The process involves careful planning, a detailed feasibility study, a strong financial model, and risk management strategies. Lenders typically require developers to contribute a portion of the project cost through equity and provide a comprehensive plan to ensure the project's success.

Given the complexities, property development loans require a deep understanding of market trends, construction, financing, and risk management. If you are considering property development, it’s important to work closely with a mortgage broker with strong property development background for lender recommendations, structuring finance and fulfil specific requirements for your project.

Terrence Sum

Managing Director & Principal Mortgage Adviser at Grand Ocean Financial Services

[email protected]

0433102078

DISCLAIMER:

The information provided in this article is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Therefore, before you decide to buy any product or keep or cancel a similar product that you already hold, it is important that you read and consider the relevant Product Disclosure Statement (PDS) of the product provider to make sure that the product is appropriate for you. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.

The author is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of the information.

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