Everything You Need to Know About Multi-Unit Construction Loans

What Makes Multi-Unit Construction Finance Different

Multi-unit construction finance operates on progressive drawdowns tied to verified construction milestones, with lenders requiring council approval, registered builder contracts, and detailed cost breakdowns before releasing funds. A developer looking to build four townhouses in Como, for instance, would access funds in stages as the foundation, frame, lock-up, fixing, and completion phases are verified by the lender's valuer.

Unlike a standard construction loan where you might be building a single dwelling, multi-unit projects attract closer scrutiny because the loan amount is typically larger and the project timeline extends over 12 to 18 months. Lenders will assess not just your ability to service the debt during construction, but also your exit strategy once the units are complete. If you plan to sell some units and retain others as investment properties, that affects how they structure the facility.

The construction draw schedule becomes the backbone of your funding. Each drawdown is tied to a progress inspection, and the lender only releases funds once their valuer confirms the work claimed has been completed to a satisfactory standard. For a four-townhouse project, you might have five or six drawdowns across the build, with each one covering the costs incurred since the last inspection. This protects both you and the lender, but it also means your builder needs to be comfortable working within that payment rhythm.

How Council Approval and Development Applications Affect Funding

You cannot access construction funding until your development application has received council approval and all relevant conditions have been satisfied. Lenders will request a copy of your approved plans, and in some cases, they will want to see that conditions such as drainage, landscaping, or parking have been addressed before settlement. In Como, where residential zoning allows for grouped dwellings and multiple dwellings under the City of South Perth planning scheme, your development application will need to demonstrate compliance with setback requirements, plot ratio limits, and open space provisions.

Once council approval is in place, the lender will conduct a pre-construction valuation based on the approved plans and your fixed price building contract. This valuation determines how much they are willing to lend, and it is based on the projected end value of the completed units rather than the land value alone. If the valuation comes in lower than expected, you may need to increase your deposit or adjust the scope of the project.

Fixed Price Contracts and Cost Plus Arrangements

Most lenders require a fixed price building contract with a registered builder before they will approve multi-unit construction funding. The contract should include a detailed progress payment schedule that aligns with the construction draw schedule, so the builder is paid as each stage is completed and verified. A fixed price contract protects you from cost overruns and gives the lender confidence that the project will be delivered within budget.

Cost plus contracts, where you pay for materials and labour as they are incurred, are harder to finance because the final cost is uncertain. Some lenders will consider cost plus arrangements for owner builders or for developers with significant construction experience, but the loan amount will typically be lower and the interest rate higher. If you are building in Como and considering an owner builder approach, expect to provide a detailed budget, evidence of your construction experience, and a higher deposit, often 30% or more.

Interest Charges and Progressive Drawing Fees

During the construction phase, you only pay interest on the amount drawn down, not the full loan amount. If your total facility is $1.2 million and you have drawn down $400,000 after the first two stages, you are only charged interest on that $400,000. This is one of the advantages of construction funding, as it keeps your repayments lower while the project is underway.

However, lenders charge a Progressive Drawing Fee each time funds are released, typically between $300 and $500 per drawdown. Over five or six drawdowns, this adds up to a few thousand dollars, so it should be factored into your project budget. Some lenders also charge an establishment fee and a valuation fee at the start of the loan, which can add another $1,000 to $2,000 to your upfront costs.

Interest-only repayment options are standard during construction, and you switch to principal and interest repayments once the project is complete. If you are planning to sell the units upon completion, you would typically negotiate an interest-only period that extends beyond the construction phase to give you time to market and settle the sales.

What Happens After Practical Completion

Once your builder issues a Certificate of Practical Completion and the lender's valuer confirms the work is finished, the loan converts from a construction facility to either a standard home loan or an investment loan, depending on your intentions. If you are keeping all four townhouses as rental properties, the loan converts to an investment facility and you begin making principal and interest repayments based on the final loan amount.

If you are selling two units and retaining two, the lender will require you to discharge part of the loan from the sale proceeds, and the remaining balance will be split across the two properties you are keeping. This needs to be planned in advance, because some lenders will only allow partial discharges if that was agreed at the outset. If you are refinancing after completion to access a lower rate or different loan structure, that is another option, but it adds time and cost to the process.

Land and Construction Packages in Como

Some developers start with a land and construction package where they purchase a block and arrange construction funding in a single transaction. This is common in Como, where older homes on larger blocks are being demolished and replaced with multiple dwellings. If you are buying land with the intention of developing it, the lender will assess your application based on the combined value of the land and the proposed development.

The land component is typically financed at a lower loan-to-value ratio, often 80%, while the construction component may be financed at 90% if you have a strong financial position. The lender will require evidence that you can commence building within a set period from the loan settlement, usually six to 12 months. If you miss that deadline, they may reassess the loan or require you to reapply, which can cause delays.

Multi-unit construction funding requires preparation, but with the right structure and a clear understanding of how progressive drawdowns work, it is manageable. If you are building in Como or elsewhere in Perth and need support with your construction loan application, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions