Capital Flows, Funding Trends & Development Opportunities for FY26
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Capital Flow Strengthening into FY26
Capital inflows for lending and equity investment into Australian development projects are up on last year. Overseas-based lenders and investors, armed with relatively cheaper capital, are targeting Australia’s stability and consistent returns. Locally, high-net-worth individuals and family offices - many of whom have been sitting on cash - are now seeking higher-yielding opportunities outside the share market.
Finding such opportunities is increasingly difficult, which is why pooled funds like the Lambert Capital Property Credit Fund are gaining traction. These allow for selective, “cherry-picked” investments that balance risk and return. Combined with RBA cash rate cuts, this influx of capital should lower lending rates, improve project feasibilities, and make it easier for end purchasers to service debt.
Non-Bank Lenders Taking the Lead
The most active players in the development lending space are non-bank lenders, including specialist credit funds and family offices. Developers are gravitating to these sources for faster, more flexible funding - particularly on projects with presale hurdles, unconventional structures, or those requiring relationship-driven banking.
While some newcomers believe the sector offers easy wins, the reality is far more complex. Lambert Capital’s 16 years of experience reveal a market that demands deep expertise to navigate builder insolvencies, developer stress, fluctuating presale conditions, and unpredictable government interventions. Recent exits by debt funds selling their businesses at high multiples may tempt newcomers to chase potential “windfall” returns, but sustained profitability comes from resilience over cycles, not opportunistic timing.
Asset Classes in Demand
Affordable and social housing, NDIS developments, and childcare centres are drawing the strongest funding appetite, supported by demographic trends and government policy. Non-bank lenders are increasing their share of these markets, while larger institutional funds are directing capital toward build-to-rent projects - whether as a strategic pivot or simply to deploy surplus cash.
For Lambert Capital, the focus remains on projects with clear exit strategies and trusted developers, including residential land subdivisions, townhouses, low-rise apartments, and warehouses targeting owner-occupiers and investors.
Location Priorities for FY26
Funding partners are prioritising house-and-land developments and owner-occupier product in capital cities and high-growth lifestyle regions in NSW and QLD. Demand from both locals and investors remains strong, and Lambert Capital has successfully delivered multiple subdivisions in these markets.
Victoria’s market is generally slower, but targeted locations - especially Melbourne’s western suburbs - are performing well. Here, demand for residential land, completed housing stock, and new warehouse space is robust. Ultimately, Lambert Capital’s strategy hinges as much on the developer’s track record as on the project’s postcode.
From Tight Credit to Renewed Confidence
Between 2020 and late 2023, tighter credit conditions and escalating construction costs squeezed developer returns and curtailed lender appetite. Many projects stalled amid shrinking margins and reduced loan-to-cost ratios. By 2024, construction cost inflation began to stabilise and interest rates started to decline. Entering 2025, improving affordability and sustained demand - driven by population growth - have lifted confidence.
More projects now pass viability tests, encouraging developers to restart previously shelved townhouse and land release projects. FY26 funding models are benefiting from this recalibration, enabling lenders to back more profitable developments.
Alternative Funding: Promise and Pitfalls
As banks pulled back between 2022 and 2024, joint ventures and private debt structures gained prominence. For well-capitalised, experienced developers, these have been valuable tools for bridging funding gaps. However, easier access to capital also enabled some marginal projects to proceed, leading to delays and viability issues in 2023.
Lambert Capital has deliberately prioritised conservative capital structures and seasoned management teams, ensuring projects remain viable and well-managed even in changing conditions.
Evolving Partner Expectations
Capital partners are approaching FY26 with more caution, especially around return-on-cost (ROC) metrics and risk management. Developers once comfortable with ROC targets of 15 - 20% have sometimes started projects with only a 10 - 15% ROC - an approach that can raise risk levels. Overly aggressive feasibilities or underpriced sales strategies have caused financing delays and project deferrals.
Today, stakeholders expect rigorous market testing, cost control, and validated sales assumptions before committing to funding. This discipline is vital for protecting returns and safeguarding capital.
Rising Interstate and Offshore Interest
Australian residential and commercial property is attracting more interstate and offshore investment. Perth, Adelaide, and Queensland are benefiting from residential and mixed-use demand, while Victoria and particularly Tasmania are drawing investors due to constrained supply and stronger rental returns.
From a funding perspective, the higher returns available in Australia - relative to falling rates overseas - are pulling in offshore capital. However, as more cash arrives, the yield gap is narrowing, reducing the arbitrage.
Opportunities and Challenges Ahead
Falling interest rates will be a major tailwind in the next 12–18 months, lowering borrowing costs, improving feasibilities, and boosting affordability for buyers. Developers will also find it easier to acquire new properties and manage debt.
However, headwinds remain. Government competition for labour and materials continues to drive up costs, and regulatory hurdles are slowing project starts and completions. These factors create uncertainty in development pipelines, making strong, experienced funding partnerships critical for success in FY26.
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