Buying a commercial property off-the-plan is different from buying residential.
The deposit structure works differently, lenders assess the property differently, and you'll need to show how the property will generate income before settlement, even though nothing has been built yet. If you're considering this as a way to secure business premises or start a commercial investment, understanding these differences will shape what you can borrow and when.
How commercial off-the-plan deposits are structured
Commercial off-the-plan deposits are typically paid in stages rather than as a single upfront payment. The developer might require 10% at contract signing, another 10% at slab down, and the balance at completion. This staged approach means you'll need access to funds over a longer period, not just at the start. Some lenders will allow you to draw on your loan progressively to meet these deposit milestones, while others expect you to fund the full deposit from your own resources and only provide the balance at settlement. The structure you negotiate with the developer and the lender's willingness to fund progressive deposits will determine how much cash you need available before the property is finished.
Consider a buyer purchasing a small office warehouse off-the-plan in an outer Melbourne industrial precinct. The contract requires a 20% deposit in two instalments. The buyer arranges a commercial loan with progressive draw-down capability, allowing them to draw the second 10% instalment when required rather than holding the full amount in cash. The lender structures this as part of the overall facility, reducing the immediate cash burden and allowing the buyer to keep working capital in the business.
What lenders assess before approving the loan
Lenders approve commercial off-the-plan purchases based on the contract price, the development approval, and your ability to service the loan once the property is complete. Unlike residential lending, where the property secures the loan based on its current or projected value, commercial lenders want to see a tenancy plan or intended business use. If you're buying the property for your own business, you'll need to show how the business will cover the loan repayments. If you're buying it as an investment, you'll need to provide a lease agreement or evidence of rental demand in that location. Without a clear cashflow plan, most lenders won't proceed, even if the deposit and contract are in place.
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How pre-settlement valuations affect your loan amount
The loan amount on a commercial property loan is determined by a valuation completed closer to settlement, not at the time of contract. If the completed property values below the contract price, the lender will base the loan on the lower figure, which means you'll need to cover the shortfall with additional equity or cash. This is more common in commercial lending than residential because valuers assess commercial properties based on rental income potential and comparable sales, both of which can shift during a construction period. A property contracted at $800,000 might be valued at $750,000 if market rents have softened or if comparable sales in the area have declined. The buyer would need to find the additional $50,000 plus the difference in the deposit calculation to settle.
If you're buying in a suburban commercial zone where rental demand is driven by local employment or logistics activity, ask the developer for recent leasing activity in the area and factor a valuation buffer into your planning. A 5% to 10% gap between contract price and final valuation is not unusual, particularly in areas where new supply is being delivered quickly.
Why lenders require evidence of tenancy or business use before settlement
Most commercial loan approvals are conditional on the property being tenanted or occupied at settlement. If you're buying as an investment, the lender will want a signed lease with a tenant in place before they release the funds. If you're buying for owner-occupation, they'll want evidence that your business will move in and generate sufficient income to service the debt. This requirement exists because commercial properties without tenants or business use are considered higher risk and harder to value. A warehouse with no tenant and no immediate prospect of one may not be financeable at a standard LVR, even if the buyer has significant equity elsewhere.
In practice, this means you'll need to start securing a tenant or finalising your business relocation plans months before settlement, not after. Developers sometimes assist with this by offering incentives to early tenants or by pre-leasing sections of a development, but if you're purchasing a standalone unit, the responsibility sits with you. Lenders will request a copy of the lease, including rent amount, term length, and tenant details, as part of their final approval.
How GST affects the purchase and the loan structure
Commercial property purchases often include GST in the contract price, which is then claimed back by the buyer if they're registered for GST and intend to use the property for commercial purposes. The lender will typically lend on the GST-inclusive price, but you'll need to cover the GST component at settlement and claim it back later through your Business Activity Statement. If the contract price is $550,000 including GST, the lender might approve a loan for 70% of that amount, but you'll still need to pay the $50,000 GST component at settlement and wait for the Australian Taxation Office to refund it. This creates a temporary cashflow requirement that catches some buyers unprepared, particularly if they're also covering stamp duty and other settlement costs at the same time.
Work with your accountant to confirm how the GST will be structured in the contract, whether you're entitled to claim it back, and when you're likely to receive the refund. If the refund won't arrive until after settlement, make sure you have access to enough working capital or a facility that allows for this timing gap.
What loan structure works for off-the-plan commercial purchases
Most buyers use a combination of principal-and-interest and interest-only periods when structuring a commercial loan for an off-the-plan property. During construction, when the property isn't generating income, an interest-only period reduces repayment pressure. Once the property is tenanted or the business is operating, switching to principal-and-interest repayments becomes more manageable. Some lenders offer construction loan products specifically for commercial off-the-plan purchases, which allow for progressive draw-downs during the build and convert to a standard commercial loan at completion. These products suit buyers who are funding stage payments or who need access to funds for fitout work before the property is fully operational.
Flexible loan terms and redraw facilities are less common in commercial lending than residential, so if you expect to make lump-sum repayments or need access to funds after draw-down, confirm these features are included before proceeding. Commercial lenders tend to price loans based on risk, and features that increase flexibility often come with higher rates or fees.
If you're weighing up whether an off-the-plan commercial purchase suits your situation, or if you need help structuring a loan that accommodates staged deposits and pre-settlement tenancy requirements, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How are deposits structured for commercial off-the-plan purchases?
Commercial off-the-plan deposits are typically paid in stages rather than upfront, often 10% at contract signing and another 10% at key construction milestones. Some lenders allow progressive draw-downs to fund these instalments, while others require you to fund the full deposit from your own resources.
What happens if the property values below the contract price at settlement?
The lender will base the loan amount on the lower valuation, not the contract price. You'll need to cover the shortfall with additional cash or equity, which is more common in commercial lending due to how valuers assess rental income potential and comparable sales during the construction period.
Do I need a tenant in place before settlement on a commercial off-the-plan property?
Most lenders require evidence of tenancy or business use before they release funds at settlement. If buying as an investment, you'll need a signed lease, and if buying for owner-occupation, you'll need to show your business will move in and generate income to service the loan.
How does GST affect the purchase of a commercial off-the-plan property?
Commercial property purchases often include GST in the contract price. You'll need to pay the GST component at settlement and claim it back later if you're registered for GST, creating a temporary cashflow requirement that should be planned for alongside other settlement costs.
What loan structure suits a commercial off-the-plan purchase?
Most buyers use an interest-only period during construction when the property isn't generating income, then switch to principal-and-interest repayments once it's tenanted or operational. Some lenders offer construction loan products that allow progressive draw-downs and convert to a standard commercial loan at completion.
