Avoid These 5 Mistakes When Buying Commercial Land

Most Commercial Land Purchases Don't Settle the Way You'd Expect

Commercial land doesn't behave like residential property. Lenders treat vacant land as higher risk, which means deposit requirements start at 30% to 40%, and your loan structure will look different from the beginning. If you're buying commercial land in Sunbury with plans to develop, lease, or hold, the way you structure your finance now will either open doors or lock you into limitations you didn't anticipate.

Treating Deposit and Settlement Like a Residential Purchase

A 20% deposit won't cut it. Most lenders won't consider a commercial land purchase below 30%, and many prefer 40% or more depending on the site's zoning and your intended use. The loan-to-value ratio is lower because the land generates no income until you build on it or lease it out. If you're planning to hold the land for future development, some lenders will require an even higher deposit or won't lend at all without a clear development timeline.

Settlement periods also run longer. Where residential contracts might settle in 60 to 90 days, commercial land transactions in Sunbury often require 90 to 120 days, particularly if the sale involves subdivision approval or if the site has been rezoned recently. Lenders need time to assess the land's commercial viability, order valuations that account for future use, and confirm that zoning aligns with your stated purpose. If your contract doesn't allow enough time for this process, you risk forfeiting your deposit when finance doesn't arrive on schedule.

Assuming All Lenders Will Finance Vacant Commercial Land

Not all lenders will touch vacant commercial land. The big four banks may approve loans for developed commercial property with tenants and income, but they often decline land purchases unless you're an established business with years of trading history and strong cash flow. Even then, the loan terms may be restrictive.

Consider a buyer who wanted to purchase a 2,000 square metre parcel of industrial-zoned land near Sunbury's Lancefield Road precinct. The buyer intended to hold the land for 18 months before building a warehouse. Three major lenders declined the application outright because there was no immediate income and no construction contract in place. A regional lender eventually approved the loan at 35% deposit with a variable interest rate and a requirement that construction begin within two years. The buyer also had to provide a business plan showing projected rental income once the warehouse was complete.

If you don't approach lenders who actively finance commercial land, you'll waste weeks chasing approvals that were never going to happen. A broker with access to commercial property finance across multiple lenders can identify which institutions will consider your scenario before you submit an application.

Overlooking the Difference Between Secured and Unsecured Lending

A secured commercial loan uses the land itself as collateral, which usually results in lower interest rates and longer loan terms. An unsecured loan relies on other business assets or personal guarantees, and lenders charge higher interest rates to offset the risk. Most commercial land purchases require a secured loan, but if your business is new or you're buying land through a recently incorporated entity, lenders may ask for additional security such as a residential property or a director's guarantee.

The loan structure matters as much as the rate. A secured loan might offer a 25-year term with principal and interest repayments, while an unsecured facility could require interest-only payments over five years with a balloon payment at the end. If your plan is to hold the land and develop it gradually, a longer loan term with flexible repayment options gives you room to manage cash flow without pressure. If you intend to sell or refinance within a few years, a shorter term with a redraw facility might make more sense.

Ignoring Valuation and LVR Conditions Specific to Sunbury

Commercial property valuation doesn't work the same way as residential appraisals. Valuers assess commercial land based on comparable sales, zoning, access to infrastructure, and potential income. In Sunbury, land near the Sunbury Industrial Estate or close to the Calder Freeway interchange will generally value higher per square metre than sites further out with limited road access. If your contract price sits above the valuer's assessment, the lender will base the loan on the lower figure, which means you'll need to cover the shortfall in cash.

The loan-to-value ratio caps out lower for land than for developed property. Even if you have a strong deposit, lenders may limit the loan amount to 60% or 65% of the valuation. If you're buying land with the intention to build, some lenders will combine the land purchase and construction into a single facility with progressive drawdown, but that requires a registered builder, a fixed-price contract, and council approval before settlement. Without those elements in place, you'll need to finance the land first and then apply separately for construction funding.

Locking Yourself Into Fixed Rates Without a Clear Build Timeline

Fixed interest rates offer certainty, but they come with conditions that don't suit every commercial land purchase. If you fix your rate and then decide to sell the land, refinance, or draw additional funds for construction, you may face break costs that wipe out any interest savings. Variable interest rates give you flexibility to make extra repayments, access a redraw facility, or refinance without penalty, which is useful if your plans change or if you find a more suitable lender once construction begins.

In a scenario where a buyer locked in a three-year fixed rate on a land purchase, intending to start construction within 12 months, council approval took 18 months longer than expected. The buyer couldn't access additional funds under the fixed loan and had to apply for separate construction finance at a higher rate. The original loan remained fixed with no redraw, which meant the buyer was paying interest on idle capital while waiting for approvals. A split loan structure with part fixed and part variable would have allowed access to funds as needed without triggering break costs.

If your development timeline is uncertain or dependent on approvals, a variable loan or a revolving line of credit tied to the land gives you room to adapt. Some lenders also offer interest-only periods during the holding phase, which reduces repayments until construction starts and income begins.

How Step Ahead Finance Structures Commercial Land Purchases in Sunbury

We work with lenders who understand commercial land transactions and who have appetite for buyers in growth areas like Sunbury. Whether you're buying industrial land near the airport employment corridor or retail-zoned sites closer to the town centre, we'll match your scenario to lenders who will actually approve it. We also structure loans to allow for future construction or development without requiring you to refinance or reapply once you're holding the land.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit, your timeline, and your intended use, and we'll show you which loan structure fits your situation before you sign a contract.

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