Successful business owners understand cash flow, margins, project delivery and calculated risk. After building a profitable enterprise and accumulating equity, property development can begin to look like a logical next step: acquire a site, create something of greater value, then sell or retain the completed property.

The opportunity can be attractive, particularly as Australia seeks additional housing supply and recent tax reforms provide different treatment for eligible new residential developments and commercial property.

However, business success does not automatically translate into development success. A project can appear profitable on paper and still be unfinanceable—or leave too little margin to withstand rising costs, delays or weaker end values.

Before committing to a site, business owners need to understand how lenders assess development projects, how their business income affects borrowing capacity, and how tax, GST and ownership structures can alter the outcome.

Three forces are encouraging more business owners to consider property development:

From 1 July 2027, negative gearing on affected established residential properties will be restricted, while eligible new builds remain exempt. Changes to capital gains tax will also introduce cost-base indexation and a 30% minimum tax on real capital gains, subject to transitional arrangements. These measures may strengthen the relative appeal of creating new housing supply. Australian Government Budget

Division 296 has also commenced from 1 July 2026, reducing superannuation tax concessions for individuals with higher total superannuation balances. This is causing some business owners to reconsider how and where long-term capital is invested. Australian Taxation Office

These changes can be a catalyst for reviewing investment strategy—but they cannot turn an unviable development into a good one.

A development facility is generally not advanced as one lump sum. The lender releases funds progressively as construction milestones are reached and independently certified.

The usual sequence includes:

Interest is commonly capitalised during construction and added to the loan balance. This reduces monthly cash demands during the build, but it also means debt continues to grow until the project is completed and sold or refinanced.

Lenders will focus on several core measures:

Many lenders look for a net development margin of approximately 15-20% of GRV. A project producing a smaller accounting profit may therefore still fail the lender’s feasibility requirements.

Consider a business owner proposing four townhouses on a 900-square-metre site.

Indicative project feasibility

If the four townhouses are expected to sell for $650,000 each, the project has a GRV of $2.6 million.

After deducting project costs and estimated selling costs, the indicative development profit is approximately $195,000—or only 7.5% of GRV.

The project makes money on paper, but the margin provides limited protection against:

At 7.5% of GRV, it would also fall below the feasibility threshold required by many development lenders.

Even when the project is expected to repay its own debt through completed sales, lenders may still assess the business owner’s personal financial position and serviceability.

This can create tension between tax planning and borrowing capacity.

Self-employed income is commonly assessed using declared income from tax returns, sometimes averaged across two financial years. A business owner who retains earnings in a company or minimises personal taxable income may have considerably more economic capacity than the lender recognises.

Lenders may also request:

Experience operating a building, engineering, manufacturing, trade or project-based business can strengthen an application -but it needs to be properly documented and presented.

The entity acquiring the land can affect taxation, asset protection, borrowing arrangements and how development profits are ultimately distributed.

Development profit generated through an active commercial undertaking is generally taxed as ordinary income rather than as a capital gain. This means CGT concessions will not usually apply simply because the underlying asset is property.

GST also requires early attention. Sales of newly constructed residential property are generally taxable supplies, while eligible developments may be able to use the margin scheme to calculate GST on the development margin rather than the full selling price.

The margin scheme must be addressed in writing before settlement and cannot simply be elected retrospectively after the transaction is complete.

Decisions concerning the entity, GST registration, margin-scheme eligibility and treatment of input tax credits should therefore be made before exchanging contracts on the land.

An SMSF can invest in property, but that does not mean it can freely borrow to develop property.

An SMSF may be able to:

However, borrowed funds under an LRBA generally cannot be used to substantially improve or develop the acquired property. Residential property also cannot be occupied by members or their relatives.

SMSF development strategies require specialist financial, legal and tax advice. The source of construction funding and the purpose of the investment are critical.

A properly prepared development application will generally require:

The lender is underwriting both the borrower and a project that does not yet exist. A complete, professionally presented application is easier to assess, place and negotiate.

Every project should begin with a clear exit strategy.

Will the completed properties be sold? Will some be retained and refinanced? If market conditions change, does the borrower have sufficient income and equity to hold the completed stock?

The most common development failures often begin before construction:

Business owners are often well equipped to manage commercial risk. The challenge is applying that discipline before becoming emotionally or financially committed to a particular site.

Property development can provide business owners with another avenue for income, capital growth and long-term wealth creation. It can also expose the operating business, personal assets and accumulated wealth to significant risk if the project is poorly selected or structured.

The right starting point is not the loan application. It is an integrated review of the site, feasibility, tax structure, funding requirement and exit strategy.

Wood Associates works across commercial finance, business advisory and business transactions. That broader perspective helps business owners assess not only whether a lender may fund the project, but whether the project itself deserves to proceed.

To arrange a confidential discussion about your finance requirements, contact Wood Associates Finance on 03 5259 9970 or speak directly with Chris Capponi, Head of Finance Advisory.

This article provides general information only and does not constitute financial, taxation or legal advice. Development scenarios are illustrative. Obtain advice from an appropriately qualified accountant, legal adviser, financial adviser and finance broker before acquiring or developing property.