Avoid These 5 Mistakes When Buying Commercial Land

Buying commercial land without the right finance structure can lock you into terms that don't suit the development timeline or cost you thousands in holding costs before construction begins.

Camberwell's commercial precincts along Burke Road and Riversdale Road attract investors looking to acquire land for mixed-use developments, medical centres, and retail projects. The challenge is that raw land generates no income while you hold it, so the loan structure needs to account for holding costs, council approval timelines, and your plans for the site. Get the structure wrong at purchase, and you'll either pay too much in interest or find yourself needing to refinance before construction even starts.

Borrowing Against Future Value Instead of Current Use

Lenders assess commercial land based on its current zoning and use, not what it might become after development approval. A 600-square-metre block zoned Commercial 1 in Camberwell might be worth considerably more once approved for a three-storey mixed-use building, but at purchase, the lender values it as vacant land.

Most lenders will offer 60% to 70% LVR on commercial land acquisition, lower than the 80% available for income-producing commercial property. If you're purchasing land at $1.2 million, expect to provide $360,000 to $480,000 as deposit and costs, not the $240,000 you might assume from residential lending ratios. Consider a buyer purchasing a corner site in Camberwell for future medical consulting rooms. The land costs $950,000, and the lender approves 65% LVR. The buyer needs $332,500 for the deposit, plus another $45,000 to $55,000 for stamp duty, legal fees, and valuation costs. Total cash required at settlement is close to $390,000, not the $200,000 they initially budgeted.

Choosing Interest-Only Without a Drawdown Strategy

Interest-only repayments reduce holding costs while the land sits vacant, but only if you've structured the loan to transition smoothly into construction finance when you're ready to build. Some buyers take a standard commercial property loan at purchase, then discover their lender won't provide construction funding or requires a full refinance to access it.

The solution is to arrange the land acquisition loan with a lender who also offers commercial construction facilities and can roll the land debt into a progressive drawdown once approvals are in place. This avoids double application fees, second valuations, and the risk of being declined for construction funding after you've already committed to the land. If your project timeline is 12 to 18 months from purchase to construction start, an interest-only term that matches that period keeps repayments lower without forcing you to refinance mid-project.

Underestimating Holding Costs During the Approval Phase

Commercial land doesn't just cost you the purchase price and loan repayments. Council rates, land tax, and interest accumulate from settlement day, and if your development application takes longer than expected, those costs add up quickly.

In Boroondara, where Camberwell is located, commercial land is subject to council rates and potentially land tax depending on your total Victorian landholdings. On a $1 million block, annual council rates might be $6,000 to $8,000, and if you're paying interest-only at 7% on a $650,000 loan, that's another $45,500 per year. Over 18 months, holding costs could reach $77,000 before construction begins. Some buyers use bridging finance to cover these costs short-term, but that adds another layer of interest. The more realistic approach is to factor holding costs into your total project budget at the outset and ensure your loan amount or cash reserves can cover them without forcing a sale or scope change.

Ignoring Zoning and Overlay Restrictions Before Settlement

Lenders require a commercial property valuation before approving the loan, and that valuation reflects current zoning and any overlays that limit development potential. A block with a Heritage Overlay or Design and Development Overlay might be worth less than an unrestricted site, even if both are zoned Commercial 1.

Camberwell has several heritage precincts, and properties near Riversdale Road or within the Burke Road shopping strip may have restrictions on building height, setbacks, or facade alterations. If you're buying land assuming you can build three storeys, but the overlay limits you to two, the valuation drops and the lender may reduce the approved loan amount. Check the Boroondara planning scheme and request a Section 32 statement before making an offer. If restrictions exist, factor them into your offer price and loan application from the start.

Locking Into Fixed Rates Without Construction Certainty

A fixed interest rate on a commercial land loan can protect you from rate rises during the holding period, but it can also trap you with break costs if you need to refinance or move to construction funding earlier than expected. Most commercial fixed terms run for three to five years, and if your construction timeline shifts, you'll either pay break costs to exit early or stay locked into a loan structure that no longer suits the project.

Variable rates with redraw or offset options give you more flexibility if your plans change or if you want to make lump sum repayments from business cashflow while waiting for approvals. If you do choose a fixed rate, match the term closely to your expected holding period and confirm with the lender how the transition to construction finance will work. Some lenders allow you to roll a fixed land loan into a variable construction facility without break costs, others don't.

Buying commercial land in Camberwell requires a loan structure that accounts for holding costs, development timelines, and lender appetite for the next phase of your project. The difference between a well-structured acquisition loan and a poor one is often $20,000 to $40,000 in avoidable interest, fees, and refinancing costs.

Call one of our team or book an appointment at a time that works for you. We'll structure your commercial land purchase to match your development timeline and minimise holding costs while you move through approvals.

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