Business property lending vs construction

Property purchase finance is growing faster than construction finance

Australian Bureau of Statistics data for the June quarter of 2026 shows seasonally adjusted new business finance commitments for property purchases reached $27.2 billion, up 18.9% from a year earlier. Construction finance commitments totalled $12.5 billion, down 0.2% over the same period.

These figures do not prove that every borrower is choosing to buy rather than build. They do, however, highlight a widening gap between property-purchase and construction-finance activity at a time when development feasibility remains under pressure.

Why buying can currently look more attractive

Developing a commercial property involves planning, approvals, construction risk, cost escalation, interest during the build and a period in which the asset may generate little or no income. Buying an existing asset can provide greater certainty around the completed building, timing and potential income.

CBRE's 2026 Pacific Real Estate Market Outlook reported that market pricing remained approximately 30% below replacement cost across parts of the market. It also estimated that economic rents - the rents required to justify new development - were generally 20% to 30% above prevailing market rents for most assets.

Those estimates do not apply equally to every location or property type, but they illustrate the feasibility challenge: an existing building may be available for less than the cost of acquiring land and recreating the same asset.

Development feasibility remains a lender concern

CBRE's H1 2026 Australian Lender Sentiment Survey received responses from 44 commercial real estate lenders across local banks, international banks and non-bank lenders. It found that development feasibility remained a key concern, with elevated interest rates, construction-cost inflation and uncertainty expected to dampen acquisition and development loan activity.

The survey also found that 45% of respondents wanted to increase commercial real estate exposure, while 5% intended to reduce their loan book. This points to continuing lender appetite, but not necessarily on the same terms for every property sector or borrower.

Interest rates add to the development equation

The Reserve Bank of Australia increased the cash rate by 25 basis points in February, March and May 2026. The cash rate stood at 4.35% at 1 September 2026.

For a completed investment property, rental income may be available from settlement. A development facility, by contrast, may require interest to be funded or capitalised throughout the construction period. Delays, cost overruns or slower leasing and sales can therefore have a material effect on the project's feasibility and required equity.

Property purchase finance commitments have risen

The 18.9% annual increase in business property-purchase finance commitments indicates materially higher financing activity than a year earlier. It does not mean every asset is attractive or that buyers should overlook price, tenant quality, lease terms, building condition or future capital expenditure.

A well-located property with sustainable income and broad alternative use may be viewed differently from a vacant, highly specialised or secondary asset. The numbers must still support the purchase price, debt and intended strategy.

Banks are not the only source of commercial property finance

The Reserve Bank's March 2026 Financial Stability Review reported that non-bank lending continued to grow strongly, although non-bank lenders accounted for approximately 6% of Australian financial-system assets. The RBA also observed strong competition in commercial real estate lending from banks and non-bank lenders, alongside some easing in lending terms in recent years.

For borrowers that do not fit a major bank's standard credit position, non-bank and specialist lenders may expand the available options. Their rates, fees, terms and security requirements can differ materially, so the complete structure should be assessed.

What this may mean for a business considering property

The current financing data supports a careful comparison between buying an existing asset and developing a new one. The right answer depends on the business, property and strategy.

Buying an existing property may offer

• Greater certainty over timing and completed condition
• Potential rental or operational income from settlement
• Less exposure to approvals and construction delivery
• A clearer valuation and comparable-sales position
• The possibility of acquiring below replacement cost in some markets

Developing may offer

• A purpose-built property designed for operational requirements
• Control over design, efficiency and future flexibility
• Potential development profit or value creation
• Access to locations where suitable completed stock is unavailable

Development also introduces planning, construction, funding and completion risk. A robust feasibility should test higher costs, longer timeframes, lower end values or rents and a realistic contingency.

Prepare the finance before the right property appears

A buyer that has already assessed borrowing capacity, equity, ownership structure and likely lender appetite is better positioned to act when a suitable property becomes available. Early preparation can also identify whether the transaction needs additional security, a longer settlement period or conditions protecting the buyer if the valuation is lower than expected.

The appropriate lender for an owner-occupier may differ from the lender suited to a tenanted investment, a specialised property or an SMSF acquisition. An experienced commercial finance broker (https://www.3lane.com.au/services/commercial-finance) can compare these options and help structure the application around the property and borrower.

Buying, building or still comparing?

3LANE Finance can assess the proposed property, funding requirement, equity contribution and repayment strategy, then compare suitable banks and specialist lenders.

Discuss your commercial property finance options

Important information: This article provides general information only and does not constitute financial, legal, tax or accounting advice. Lending criteria, pricing and availability vary between lenders and are subject to assessment and approval.