Development Finance Feasibility Explained

A development finance feasibility is not a spreadsheet that shows your project works — it's a document that proves to a lender's credit team that the numbers hold under pressure. The difference between these two interpretations is why well-located projects with genuine merit get declined, and why developers who understand what lenders are actually looking for move through credit faster and on better terms.

This guide covers the inputs lenders scrutinise most closely, the ratios they run, the stress tests they apply, and the most common mistakes that kill deals at credit stage.

What Goes Into a Development Feasibility

The feasibility model is the financial proof of concept for the project. It needs to demonstrate — from first principles, with evidenced assumptions — that the project generates sufficient return above cost to justify the lending risk. The inputs fall into two categories: revenue and cost.

Revenue Side

Gross Realisable Value (GRV) is the total revenue if every lot or unit is sold at the current market. The "current market" qualifier is critical — lenders will apply a conservative OMV (opinion of market value) that reflects today's pricing evidence, not the top of the market or the vendor's asking prices. Your GRV assumptions need to be anchored to recent comparable sales within a defensible radius, typically within two kilometres and the last six months. Agent appraisals are useful context but not credit evidence; independent valuation or QS-confirmed comparable analysis is what passes muster.

Sales absorption rate — how many units per month can the project realistically sell — feeds directly into your holding cost assumptions. An unrealistically fast absorption rate understates holding costs and makes the margin look better than it is. Lenders and their QS teams will benchmark your absorption assumption against historical sales rates for comparable projects in the submarket.

Cost Side

Land acquisition cost — the purchase price plus all associated acquisition costs: stamp duty, legal fees, settlement adjustments. For ACT leasehold sites, the lease preparation cost and any Crown lease variation charges also belong here.

Construction cost — the hard cost of building the project. This needs to be supported by a quantity surveyor's estimate or a builder's contract, not a rule-of-thumb per-square-metre number. Lenders will appoint their own independent QS, and if your construction cost estimate is materially lower than theirs, the loan proceeds shrink to match their number.

Soft costs and consultants — architects, engineers, town planners, building certifiers, body corporate establishment. These are frequently underestimated and are non-negotiable costs in any project.

Finance costs — interest during the construction period (calculated against the drawn balance, not the peak facility) plus line fees, establishment fees, and any mezzanine costs. A feasibility that doesn't include finance costs is not a feasibility — it's a pre-finance return estimate that will deceive you about the actual outcome.

Marketing, sales commissions, and legal costs — typically 2–4% of GRV depending on product type and sales strategy.

Contingency — the allowance for cost overruns that every project encounters. Lenders expect to see 5–10% of hard construction cost. Modelling 3% contingency tells a credit team you haven't built a complex project before. Ten percent says you have.

Developer's overhead and profit — the return on your time, equity, and risk. This is distinct from the project's net profit — it's the cost of managing the development, and it belongs in the TDC.

The Ratios Lenders Run

Once your revenue and cost assumptions are assembled, lenders apply a standard set of ratios. These are the minimum thresholds; lenders will look at projects above the minimum differently depending on how far above they sit.

These ratios interact. A project with strong profit on cost but a high LVR on GRV will still face a borrowing constraint. A project with solid profit on GRV but high TDC will hit the lend-to-TDC ceiling before the GRV ceiling. The binding constraint is whichever ratio is most restrictive for your specific cost and revenue profile.

Peak debt LVR on GRV is the ratio most developers focus on — and rightly so, because it directly determines how much the lender will advance. But lend-to-TDC is often the constraint that catches developers by surprise. If your land cost is high relative to the overall project value — a common dynamic in inner-Canberra sites — your TDC is a large portion of GRV, and the lend-to-TDC ratio bites before the GRV ratio does.

The Stress Tests Lenders Apply

A feasibility that only shows the base case is incomplete from a credit perspective. Lenders run stress scenarios to determine how much margin there is between the base case and the point at which the project stops repaying the debt. This is the headroom analysis — and it's where many deals that look fine at base case start to look problematic.

GRV Softening

What happens to your profit on cost if GRV falls 10%? 15%? 20%? In a market where residential prices have moved materially — and the ACT has experienced both strong upswings and consolidations in recent years — lenders want to know how far the revenue can compress before the equity is impaired. A project that turns from 22% profit on cost to sub-10% on a 10% GRV reduction is a different credit risk than one that stays above 15% through the same scenario.

Construction Cost Overrun

What happens to your margin if hard costs run 10–15% over budget? Construction cost inflation has been a consistent feature of the Australian market since 2021, and lenders have seen enough projects where builder pricing escalated mid-construction to price this risk carefully. Your contingency allowance is the first line of defence; the stress test determines whether the project survives beyond it.

Delayed Programme

Six months of additional holding time — extended construction, delayed presales, or a slow settlement period — adds finance cost while keeping your capital locked in the project. On a 12-month construction programme at an 8% blended cost of capital, a six-month delay adds approximately 4% of peak debt in additional interest. On a $10 million facility, that's $400,000 against your margin.

Presale Shortfall

What is your exposure if you reach practical completion with 25% of units unsold? Lenders assess this against your residual stock scenario — see our article on residual stock finance — but the feasibility needs to show that the project can service or retire the debt even if the sales programme runs longer than the base case.

Common Feasibility Mistakes That Kill Deals

These are the errors we see most frequently when developers bring us feasibilities that have already been to a lender and been knocked back.

Optimistic GRV Not Supported by Evidence

Using the highest comparable sales from the top of the market, or relying on agent appraisals rather than recent transactional evidence. The lender's valuer will apply a conservative OMV, and if your GRV is 10% above their number, your profit on cost, LVR, and lend-to-TDC all move unfavourably simultaneously.

Construction Cost Sourced From Rule-of-Thumb

A per-square-metre construction cost that hasn't been tested by a quantity surveyor or a builder's indicative pricing. In the current market, construction cost estimates that are 12–18 months old are frequently materially below current pricing. The lender's QS will apply current rates; if there's a significant gap, the loan proceeds are recalibrated against the higher number.

Missing Cost Line Items

Finance costs omitted entirely. Marketing and legal costs omitted or heavily discounted. Developer's overhead not included. Each of these silently inflates the apparent margin. When the lender's credit team reconstructs your TDC with the full line items, the profit on cost number falls — sometimes below the minimum threshold.

Insufficient Contingency

Three percent contingency on a project of any complexity is not a contingency — it's an optimistic assumption dressed up as one. The level of contingency should reflect project-specific risk: a straightforward residential development on a clear site can reasonably carry 5%; a brownfield redevelopment, a project with heritage interfaces, or a complex mixed-use build warrants 10–12%.

Absorption Rate Not Benchmarked

Sales programmes that assume the project will be fully presold before construction commences without evidence of comparable projects achieving that outcome, or that assume settlement will occur immediately on completion across all stock. Unrealistic absorption rates understate the holding cost during the sales campaign and can materially affect the net return.

Building a Feasibility That Works With Lenders

The difference between a feasibility that gets funded and one that doesn't is rarely the project — it's the quality of the evidence supporting the assumptions and the completeness of the cost modelling. Lenders are looking for a feasibility that demonstrates the sponsor understands all the costs, has stress-tested the returns, and can still show a project worth funding after the conservative adjustments they will apply.

At Black Mountain Financial, we build institutional-grade feasibility models as the first step of our development finance advisory process — before approaching any lender. George Popadalis and the team model your specific project: site, product type, planning context, and current market evidence. We run the stress scenarios ourselves before any credit team sees the numbers, so that we're not discovering problems during the lender's due diligence process. We know what a strong feasibility looks like from the lender's side of the table — because we've placed development finance transactions across that table many times.

If you're preparing a development finance application and want to understand whether your feasibility will hold up under credit scrutiny, or if you're structuring a new project and want to build the funding model correctly from the outset, our development finance advisory process starts exactly there. You can also use our development funding calculator to run initial numbers before we speak.