Purchasing land for apartment construction requires finance structured differently from standard house and land packages.
The funding moves through stages as your project develops, from land acquisition through to practical completion. Understanding how progressive drawdown works and what lenders require at each stage determines whether your apartment development proceeds smoothly or stalls midway through construction.
How Land and Construction Packages Work for Apartment Developments
A land and construction package for apartments involves two distinct funding components released at different times. The land component settles when you purchase the site, while the construction funding releases progressively as work advances.
Consider a developer purchasing a 900-square-metre block on Burwood Road near the Auburn Road intersection, zoned for residential growth. The land settles at $2.1 million with a 30% deposit of $630,000. Construction funding of $3.8 million then releases across six drawdowns tied to specific milestones: base stage, frame complete, lock-up, fixing stage, practical completion, and final completion. Between drawdowns, you only pay interest on the amount already released, not the full approved loan amount.
This structure means your interest costs align with actual expenditure rather than the total project value from day one. A construction loan structured this way typically requires council approval and registered builder contracts before the first construction drawdown releases.
Development Application and Council Approval Requirements
Lenders release construction funding only after council approval is finalised and building permits are issued. Your development application must be approved by Boroondara Council before construction drawdowns commence.
In Hawthorn, where medium density zoning permits apartment developments along main roads and near commercial precincts like Glenferrie Road, approval timeframes typically extend 4-6 months from lodgement. Your lender structures the finance to commence building within a set period from the disclosure date, usually 12 months. If construction hasn't started within that window, you may need to reapply for finance approval.
Lenders also require registered builder contracts, typically fixed price building contracts, before releasing funds. Cost plus contracts where final costs remain uncertain present higher risk and fewer lenders will consider them for apartment construction. The contract must detail the progress payment schedule aligned with the lender's drawdown structure.
Progressive Drawing Fees and How They Accumulate
Each construction drawdown attracts a progressive drawing fee charged by the lender, typically between $300 and $500 per drawdown. Across six drawdowns for an apartment project, these fees total $1,800 to $3,000.
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Beyond the progressive drawing fee, lenders require progress inspections before releasing each instalment. An independent valuer or quantity surveyor inspects the work completed, verifies it matches the progress claim, and confirms the stage has been reached. The inspection cost, usually $400 to $800 per visit, is separate from the lender's fee. For a six-stage apartment development, total inspection costs reach $2,400 to $4,800.
These costs form part of your project budget and should be factored into the total loan amount at application. Failing to account for them means funding the fees from working capital, which reduces your ability to pay sub-contractors or manage variations.
Interest-Only Repayment Options During Construction
Construction funding typically operates on interest-only repayment options during the build period. You pay interest only on the amount drawn down at each stage, not the full approved amount.
As an example, after the base stage drawdown of $950,000 on a $3.8 million construction facility, your monthly interest payments apply only to that $950,000 plus the land component already funded. At current variable rates, this approach keeps monthly payments manageable while construction progresses. When the frame complete stage draws down another $1.1 million, interest then applies to the cumulative $2.05 million drawn.
Once construction reaches practical completion and you transition to permanent financing or settlement, the loan typically converts to principal and interest repayments. Some lenders offer a construction to permanent loan structure where this transition happens automatically without reapplying.
Fixed Price Contracts and Progress Payment Schedules
Your registered builder contract must align with the lender's progressive payment schedule. Lenders will not release funding ahead of work completed, and misalignment between what your builder expects and when the lender releases funds creates cash flow gaps.
Most apartment construction follows a fixed price building contract where the total cost is locked in and progress payments release at predetermined stages. The builder invoices at each milestone, the lender inspects and confirms completion, then releases that portion of the loan. Delays in inspections or disputes over whether a stage is genuinely complete can delay funding by weeks, leaving builders waiting for payment.
In our experience, projects run more smoothly when your builder understands the lender's inspection requirements upfront and provides documentation that matches what the valuer needs to approve each drawdown. This includes invoices from plumbers, electricians, and other sub-contractors showing work completed and materials supplied.
What Happens When Land Settlement Occurs Before Approvals Finalise
Some developers purchase land before council plans are finalised, particularly in areas like Hawthorn where suitable land is limited and competition for development sites is strong. Holding costs accumulate while you wait for approvals.
If you settle land at $2.1 million with interest-only payments applying immediately, your monthly cost at current rates is approximately $10,500. Over a six-month approval and pre-construction period, you pay $63,000 in interest before construction even begins. These holding costs either come from equity or are capitalised into the total loan amount, reducing the funds available for construction.
Access construction loan options from banks and lenders across Australia that allow you to capitalise interest during the pre-construction phase, but this increases your total debt and must be factored into feasibility before you commit to purchasing the land. Some developers structure the land purchase with a longer settlement period, giving time to secure approvals before settlement occurs and interest charges begin.
Securing Finance for Apartment Construction in Hawthorn
Hawthorn's proximity to the CBD, established demand for medium-density housing near Glenferrie Road retail and Swinburne University, and transport links via Glenferrie and Hawthorn stations make it a strong location for apartment development. Lenders view the area favourably, but your project still needs to demonstrate feasibility through pre-sales or rental valuations.
For projects above six apartments, many lenders require pre-sale contracts covering 70% of units before releasing construction funding. Smaller developments of four to six apartments may proceed without pre-sales if your equity position is strong and the location supports end values. Your development finance application includes detailed costings, end valuations, and evidence the project stacks up financially.
Funding apartment construction on purchased land involves more complexity than a standard home build, but the structure exists to protect both you and the lender as the project advances. Working with a broker who understands how construction drawdowns align with builder payment schedules and council approval timelines means your project maintains momentum from land settlement through to completion.
Call one of our team or book an appointment at a time that works for you to discuss how construction finance can be structured for your apartment development in Hawthorn.
Frequently Asked Questions
How does construction finance differ for apartments compared to standard house builds?
Apartment construction finance typically requires council approval for multi-unit developments, pre-sales for larger projects, and more detailed progress inspections at each drawdown stage. The loan structure is similar with progressive drawdowns, but lenders assess feasibility more rigorously due to the higher project value and development risk.
What happens to interest payments during the construction period?
You only pay interest on the amount drawn down at each construction stage, not the full approved loan amount. Most construction loans operate on interest-only repayment options during the build, converting to principal and interest once construction completes or you transition to permanent finance.
How long do I have to start construction after securing finance approval?
Most lenders require you to commence building within a set period from the disclosure date, typically 12 months. If construction hasn't started within that window due to approval delays or other factors, you may need to reapply for finance approval.
What fees apply to construction drawdowns for apartment developments?
Each drawdown attracts a progressive drawing fee of $300 to $500, plus progress inspection costs of $400 to $800 per visit. For a typical six-stage apartment build, total fees range from $4,200 to $7,800 across the construction period.
Do I need pre-sales before construction funding releases?
For apartment developments above six units, most lenders require pre-sale contracts covering 70% of apartments before releasing construction funding. Smaller developments of four to six apartments may proceed without pre-sales if you have strong equity and the location supports projected end values.
