A cautious revival for development funding

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Non-bank lenders are stepping into a more central role in New Zealand’s development market – but getting funded requires a realistic plan

New Zealand’s development finance market has spent the better part of two years holding its breath. It’s exhaling now, slowly, and with considerable care about where it steps next. “Development funding appetite has improved from 2023–24 lows, but remains selective, disciplined and driven by structure, not volume,” says Phil Bennett, head of lending at First Mortgage Trust (FMT). “Banks and non-bank lenders are more willing to look at development deals than a year ago, but appetite is not broad-based or risk-blind.” The Reserve Bank of New Zealand’s September 2025 Credit Conditions Survey reported a clear increase in credit availability (including for commercial property), with further improvement expected over the following six months. Bennett, however, is careful to draw a distinction that advisers placing development finance would do well to understand. “This reflects capacity to lend, but fundamentals remain critical to securing that funding,” he adds.What’s getting funded – and what isn’tThe clearest signal from lenders right now is that scale and certainty matter more than ambition. Small to mid-scale residential development (typically two to 20 units) is where appetite sits most comfortably. Townhouses and terrace housing in established urban catchments, projects with clear presales or strong end-value evidence, and experienced developers with demonstrable completion track records are all finding willing funders. FMT is able to fund projects requiring higher leverage via a blended funding approach with established funding partners Capital Group for projects that meet the above criteria. The reverse is equally telling. Bennett describes a set of deal types where funding appetite remains limited or heavily conditional: land banking without near-term development; speculative projects; marginal or secondary locations; and first-time developers without balance sheet support. “There is evidence that major developers are becoming more active again, while smaller developers remain cautious due to financing and viability constraints,” he says. The difference between large, established developers returning to the market and smaller operators staying on the sidelines reflects the discipline that lenders are now applying. Gearing is tighter too, with banks occasionally looking to up to 70% of gross realisable value, while non-banks like FMT can accommodate higher ratios in the right structure.

First Mortgage Trust (FMT) is an investment fund manager specialising in property finance. For 30 years, FMT has been helping New Zealanders protect and grow their wealth by providing consistent investment returns. Today, the company has over $2 billion in funds under management and more than 7,500 investors nationwide. FMT also provides mortgage advisers and clients with tailored property finance through first mortgages across the residential, commercial, industrial, construction and development sectors in New Zealand. FMT has offices in Auckland, Tauranga, Wellington and Christchurch, with over 70 staff members, and is continuing to grow to meet market demand.

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“Banks and non-bank lenders are more willing to look at development deals than a year ago, but appetite is not broad-based or risk-blind”

Phil Bennett, FMT

Published 11 May 2026

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“The next cycle won’t reward optimism; it will reward preparedness. The winners will be those who can move early, manage execution risk and structure capital to survive volatility”

Phil Bennett, FMT

project quality: site fundamentals, depth of local demand, competing supply and the developer’s execution capability. This is where the forensic approach comes in – not driven by negativity but by a desire for certainty. Buyer quality has become central to this assessment. Genuine owner-occupiers and well-capitalised local investors provide stronger validation than related-party or lightly committed buyers. Deposits, contract enforceability and alignment between presale pricing and valuation assumptions are all closely tested. Presales that rely on incentives, price support or optimistic absorption assumptions attract immediate scrutiny. Valuations reinforce this discipline. Comparable sales are tighter, discounting is more explicit, and valuers increasingly assess oversupply risk and realistic absorption rates. Presales are expected to sit comfortably within these assumptions, not stretch them. Where non-bank lending most clearly diverges from bank thinking is at the exit. Unlike banks, non-bank lenders will consider residual stock loans where the remaining stock is well located, saleable and supported by realistic pricing and demand evidence. Residual exposure isn’t inherently negative – it’s underwritten deliberately, with a clear view on velocity, market depth and downside protection. That said, exit risk has still become execution risk. Residual stock strategies must be intentional, not incidental. Whether the outcome is sell-down, hold or refinance, lenders are looking for a clearly articulated and evidenced path, not a reliance on market recovery or best-case timing. In short, presales have shifted from being a blunt requirement to a diagnostic tool. They help validate the project, inform valuation and shape the exit strategy. For non-bank lenders, flexibility exists – but it’s grounded in evidence, realism and disciplined underwriting rather than assumption.

How presales have changed the conversation Presales still matter, but their role has evolved. Rather than being viewed purely as a funding hurdle, presales are now treated as a validation tool – confirming that a project’s price point, location, product type and market acceptance are sound. For non-bank lenders, the question is less about hitting a fixed presale percentage and more about whether the presale programme provides credible evidence that the project works. While non-bank lenders are generally comfortable with lower presale thresholds than banks, that flexibility doesn’t equate to lower standards. Presales are assessed alongside broader indicators of

On planning and consenting, Bennett is frank. Reform settings, including fast-track processes, are moving in the right direction, but the practical benefits are uneven, deal-specific and not yet fully bankable in most credit decisions. Consenting delays remain one of the biggest sources of timing and execution risk in development funding, and in some cases outweigh build-cost volatility as a threat to a deal’s viability. Where the opportunities areLooking ahead over the next 12 to 24 months, Bennett sees a market that rewards deep understanding over wishful thinking. Undersupply persists in well-located urban catchments, buyer preferences are shifting towards affordable and lower-maintenance product, and the scale of small to midsized residential projects offers faster build cycles, better cost control and more flexible presales or sell-down strategies.

The new role of non-bank lendersAgainst this backdrop, the role of lenders like FMT has shifted in a way that is worth understanding carefully, particularly for brokers and advisers placing construction finance. The RBNZ easing cycle through late 2025 reduced cost-of-funds pressure and improved development feasibility on paper, and banks themselves have reported easing balance sheet constraints. But what didn’t change was banks’ tolerance for construction risk, or their reliance on policy models and standardisation. “While more deals now ‘work’ financially, fewer meet bank credit filters without modification,” Bennett says. The result is a structural shift in where non-bank lenders sit

in the market. FMT has moved from being perceived as an alternative lending option, to functioning as a leading structural enabler of development activity, particularly at the front end of a project, between stages or where bank policy still constrains execution. That distinction carries practical weight. Bennett notes that where a bank is more likely to require a project to reach certain milestones before committing, FMT is more willing to fund before certainty is absolute, building staged exits and progressive derisking into the transaction from the outset. “Non-banks are not relaxing standards,” Bennett adds. “We are pricing and structuring for uncertainty, not ignoring it.” Build costs and consenting: the risks that remainFor all the improvement in credit conditions, two structural risks continue to hang over the New Zealand development market: construction cost volatility and the consenting environment. On build costs, Bennett says FMT focuses less on headline dollar-per-square-metre figures and more on proof of delivery, project timelines and whether the project can absorb cost escalation without requiring lender intervention. “Costs until recently were more stable than 18–24 months ago, but given the ongoing volatility, lingering execution risk in the New Zealand construction sector and recent global events, we prioritise proof of delivery, project timelines and ensuring the project can absorb cost escalation and shocks without requiring lender intervention.”

“The next cycle won’t reward optimism; it will reward preparedness,” Bennett says. “The winners will be those who can move early, manage execution risk, and structure capital to survive volatility.” For advisers working with developers in this market, the practical takeaway is clear enough: the market is open, the appetite is real, but the structure of a deal matters as much as the deal itself. Non-bank lenders like FMT are playing an increasingly central role precisely because they can work with complexity – staging transactions, absorbing variance and enabling projects to commence earlier than a bank-only approach would allow.

Disclaimer: Terms, conditions & fees apply. Lending is from the First Mortgage Trust Group Investment Fund. First Mortgage Managers Limited is not a registered bank under the Banking (Prudential Supervision) Act 1989.

Construction cost growth in New Zealand

2022 2022 2022 2022 2023 2023 2023 2023 2024 2024 2024 2024 2025 2025 2025 2025

MarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDec

Quarter

Year

Source: Cordell Construction Cost Index

*Q4 2012 = 100

146.1149.9155.0157.6158.5159.5160.1161.4162.2160.4162.2163.2163.7164.7165.4166.9

Index*

2.42.63.41.70.60.60.40.80.5-1.11.10.60.30.60.40.9

% quarterly growth

7.37.79.610.48.56.43.32.42.30.61.31.10.92.72.02.3

% yearly growth

Then versus now: key shifts in lender expectations around development funding

Before 2023–24 lows

Factor

Source: FMT

Core risk mitigation; higher thresholds required earlier

Presales

Price discovery and marketing signal

Strong preference for owner-occupiers and derisked investors; less tolerance for related-party or offshore buyers

Buyer quality

Related-party and offshore buyers accepted

10–20% cash equity increasingly required

Deposits

Flexible arrangements accepted

Tighter geographic radius, greater discounting for older sales; wider use of ‘as is’, ‘on completion’ and forced-sale lenses

Valuations

Broader comparables, more assumption-driven

Explicit, credible, time-bound exit logic required from the outset

Exit strategy

‘It’ll refinance’ broadly accepted

Must demonstrate serviceability under current test rates and a clean structure

Refinance exits

Assumed and lightly tested

Must align with realistic absorption pacing and valuation evidence

Sell-down exits

Best-case clearance scenarios accepted

Structural enablers, particularly at the front end of a project and between stages

Non-bank lenders

Often only approached when banks declined first

Proof of delivery and ability to absorb cost shocks without lender intervention

Build-cost assessment

Headline $/m² focus

Structure driven; fewer deals meet bank credit filters without modification

Risk approach

Volume driven; greater reliance on market momentum

Now