Quick summary
A development feasibility study sets out the costs, the expected end value and the resulting margin for a project, and tests what happens if things go wrong. Lenders commonly review one, but what they expect varies by lender and project. The terms below are explained in general terms only, without benchmark figures.
What Is a Development Feasibility Study, and Why Lenders Ask for One
A development feasibility study, often shortened to a feaso, is a written estimate of whether a project makes financial sense before you commit to it. It brings together what the project will cost, what the finished product is expected to be worth, and what is left over. Put simply, it is the story of your project told in numbers.
For a small developer, the feaso does two jobs. First, it helps you decide whether to proceed at all. Second, it is often one of the first things a lender asks to see, because a lender assessing a small development finance request wants to understand how the loan will be repaid. A feaso is not an approval and it is not a guarantee of one; it is an input that the lender weighs alongside the borrower, the site, approvals, the builder and the exit strategy.
Many small development loans are business or investment-purpose lending, which may be assessed and regulated differently from a consumer home loan. Eligibility, structure and costs vary by lender and by project, and suitability is assessed case by case.
How to Do a Development Feasibility: A Step-by-Step Outline
If you are wondering how to do a development feasibility, the process follows the same logic whether the project is one dwelling or a handful. The steps below are an outline, not a template a lender requires.
- Define the project. What will be built, on which site, under which planning pathway, and what will happen at the end: sale, hold or refinance.
- List the costs. Work through every cost category, from land through to selling costs (see the next section).
- Add a contingency. Allow for costs rising or timing slipping.
- Estimate the end value. Base it on evidence from comparable sales and, ideally, a professional opinion.
- Calculate the margin. Work out what is left after all costs.
- Test it. Change the inputs and see how the result moves.
Your accountant, a registered valuer, a quantity surveyor and your council are the right people to check the inputs that fall into their fields. Mortgagefy does not provide tax, legal or planning advice.
The Cost Side: What Goes Into the Budget
Lenders tend to scrutinise the cost side because underestimated costs are a common reason a project comes under pressure. A thorough budget usually covers:
- Land: the purchase price, plus government charges and legal costs on acquisition. Ask your solicitor and Revenue NSW about what applies to you.
- Approvals and design: plans, reports, council or certifier fees and any contributions that apply to the site.
- Demolition and site preparation: clearing, services, and any remediation the site needs.
- Construction: the building contract, plus items outside it such as landscaping, driveways, fencing and connections.
- Professional fees: surveyors, engineers, project management and accounting.
- Finance costs: establishment fees, interest during the project and any valuation or inspection fees, which vary by lender.
- Holding and selling costs: rates, insurance, agent and marketing costs where the plan is to sell.
A fixed-price contract gives a clearer picture of the construction line, though variations and provisional sums can still move it. Our guide to fixed-price versus cost-plus construction loans explains why lenders care about the difference.
Ask us how your project would be treated
Free, no obligation. Suitability is assessed case by case.
Contingency: Showing You Have Allowed for the Unexpected
A contingency is an amount set aside in the budget for costs you cannot yet see. Weather, latent site conditions, price movements and design changes can all push costs up. Lenders commonly look for a contingency line, and how much they consider reasonable varies by lender, by project type and by how certain the other numbers are.
A budget with no contingency can read as optimistic. A budget where every line is padded can also raise questions. The point is to make your assumptions visible so that a reader can see how you reached them. If a project only works when the contingency is set to nothing, that is worth knowing before you borrow.
End Value: Gross Realisable Value and How It Is Tested
The end value, often called gross realisable value or GRV, is what the completed project is expected to sell or be valued for. It is the number that everything else is measured against, so it draws the most attention.
Lenders usually do not take your figure on trust. They commonly rely on their own valuer, who looks at comparable sales, the type of product, the location and the stage of the market. If the valuer's figure is lower than yours, the lender's assessment follows the valuer's, not your spreadsheet. It is sensible to base your own estimate on evidence you could show someone else, and to be cautious about any figure that depends on the strongest sale in the area.
Presales, where a buyer signs before the build is complete, may also be part of the picture for some projects. Whether they are needed depends on the lender and the project, and the page on development finance without presales covers that topic.
Small Developer Profit Margin: How It Is Measured
The small developer profit margin is what remains once all costs, including finance and selling costs, are taken from the end value. It can be shown in two common ways:
- Margin on cost: profit divided by total project cost.
- Margin on end value: profit divided by gross realisable value.
The two produce different percentages for the same project, so check which one a lender or adviser means. What margin a lender expects, if any, varies by lender and by project, and this guide does not suggest a benchmark. What matters is that the margin is large enough to absorb the risks in the project, and that you understand what it depends on.
Remember too that profit before tax is not what ends up in your pocket. Ask your accountant how tax applies to your situation.
Loan to Cost and Loan to Value: Two Ratios You Will Hear
Loan to cost (LTC) compares the amount of the loan with the total cost of the project. Loan to value ratio (LVR) compares the loan with a value, which in development can mean the current land value or the expected end value depending on the lender and the stage. A lender may look at more than one of these together, and the limits each lender applies vary by lender and by project.
The difference between them explains why your own contribution matters. The gap between total cost and the loan is filled by your equity, which can be cash, land you already own, or a partner. If that gap is hard to fill, some borrowers look at second mortgage or mezzanine funding, which generally costs more and carries more risk; our page on mezzanine finance in Sydney sets out the trade-offs plainly. Families combining land and money may also read about joint venture development finance.
Stress-Testing: What If Costs Rise or Sales Slip?
A single set of numbers tells a lender very little. A useful feaso shows what happens when the inputs move. Common tests include:
- Costs come in higher than planned
- The end value falls short of expectations
- The build takes longer, so interest and holding costs run for longer
- Sales take longer than planned after completion
Show the effect on the margin and on your ability to repay. If the project only works when nothing goes wrong, that is a signal to rethink the structure or the scale before you borrow. Use our home loan calculators to model the finance costs under different timeframes.
Common Feasibility Mistakes to Avoid
- Leaving out costs. Finance costs, holding costs and selling costs are often missed.
- Using an optimistic end value. A figure a valuer cannot support will not carry weight.
- No contingency. It suggests the risks have not been thought through.
- Ignoring timing. Delays add cost every month.
- Mixing up the margin measures. Margin on cost and margin on end value are not interchangeable.
- Not checking the assumptions with an adviser. Tax, planning and legal assumptions belong with the right professionals.
What to Bring When You Speak to a Broker
You do not need a perfect model to start a conversation, but a clear outline saves time. It helps to have the site details, planning status, a draft budget, your own equity and your intended exit. Mortgagefy explains how a lender may view the project, and where a suitable option exists we can take it to lenders on our panel and our aggregator's panel. Mortgagefy does not fund loans itself, and we cannot promise a result. For related reading, see the construction home loans hub, the guide to how construction loans work and progress payments in NSW.
Development lending is higher-risk. Get independent legal and accounting advice before you commit to any structure, contract or loan. Mortgagefy does not give legal, tax or planning advice; speak to your solicitor, accountant and council.
Frequently Asked Questions
What is a development feasibility study?
It is a written analysis of whether a project makes financial sense: the expected costs, the expected end value and the resulting margin. Lenders commonly ask to see one for a development loan.
How do I do a development feasibility?
List every cost, add a contingency, estimate the end value from evidence, work out the margin and test what happens when costs rise or sales fall. Your accountant, valuer or quantity surveyor can help check the inputs.
What is a small developer profit margin?
It is the profit left after all costs, usually shown as a percentage of cost or of end value. What margin a lender expects varies by lender and project, so ask before you finalise your numbers.
What does loan to cost mean?
Loan to cost, or LTC, compares the loan amount with the total cost of the project. Each lender sets its own limits and they vary by lender and project.
Why do lenders want a contingency?
Costs can rise and timelines can slip. A contingency shows you have allowed for the unexpected, and lenders commonly look for one, though how they treat it varies.
Will a feasibility study get my project approved?
No. It is one input. Lenders also assess the borrower, the security, approvals, the builder and the exit, and suitability is assessed case by case.
General information, reviewed 1 October 2026. Policies and lender processes may change. Confirm current requirements and lender participation directly with your chosen provider before applying. This information is general in nature and does not take your objectives, financial situation or needs into account. Policies vary by lender and change frequently — confirm current requirements with your chosen provider and seek professional advice.
Conditions apply. Lending criteria, fees, charges and eligibility apply and vary by lender and project. Not all applicants or projects will qualify. This is general information only and not credit or financial advice.
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