Holding Costs in Property Development: What You Need to Know in 2025

As interest rates rise and inflation ticks upward, holding costs—the ongoing expenses incurred while owning a property—are more important than ever. Understanding and managing these costs effectively is crucial to protect your investment returns. Here’s what every investor, developer, or homeowner should know.

1. What Are Holding Costs?

Holding costs are the recurring expenses you accrue when a property is owned but not yet generating income or sold. This includes:

• Interest on loans

• Council and water rates, land tax, and other fees

• Insurance, maintenance, and utilities

• Strata levies (for apartments/townhouses)

• Opportunity costs, such as capital tied up and not earning elsewhere

These costs hit profit margins hard.

2. Why Holding Costs Have Ballooned

Over the past four years, Australia has seen a dramatic rise in holding costs: interest rates jumped from just 0.10% to approximately 4.35%, while inflation drove up insurance, property maintenance, and council rates—expenses unlikely to retreat to pre-COVID levels.

3. Calculate Holding Costs Accurately

Developers often miscalculate holding costs. Common errors include:

• Overestimating interest by applying it to the entire project cost (instead of just the borrowed portion or the construction drawdown)

• Neglecting tax benefits or write-offs tied to interest expenses

Tip: Break them down in your feasibility model by week or month, not just annually—and always include a buffer.

4. The Broader Economic View: Holding Costs & Carrying Costs

In finance, “carrying costs” (or holding costs) extend far beyond property. They include insurance, capital opportunity costs, storage fees, and maintenance—commonly around 20–30% of inventory value in other sectors. In property development, these translate to real dollar impacts, not just percentages.

5. Strategies to Mitigate Holding Costs

• Use a Guaranteed Maximum Price (GMP) in your developer contracts to limit financial exposure.

• Prioritise shorter build timelines—the faster you finish, the less you pay.

• Stagger loan drawdowns to reduce interest during early works.

• Operate lean: tight project management, proactive dispute handling, and consistent oversight trim unnecessary drift.

6. Is Property Investment Still Worth It?

With holding costs rising, many investors are asking: Is property development still viable? Absolutely—but only with the right structure. Projects must deliver strong capital growth, and developers must closely monitor timelines and costs. As holding costs climb, so should your due-diligence.

Key Takeaways

Insight	Why It Matters
Holding costs include interest, taxes, insurance, and maintenance	These expenses erode returns and require upfront accounting
Costs have significantly increased since 2020	Interest and inflation mean holding is more expensive now
Accurate calculations matter	Overestimating or ignoring tax offsets skews feasibility
Use smart tools like GMPs and fast construction	Mitigates financial risk and reduces holding exposure
Property remains viable—for those who plan smart	Long-term assets still deliver—but you need more strategy now

At OwnerDeveloper, we embed holding cost forecasts into every feasibility and budget review. From site analysis to builder agreements, our goal is delivering developer-grade outcomes—without surprise cost blowouts.

Want help modelling holding costs for your next build or investment?

Contact us for a free feasibility consultation

Let’s build smarter—together.