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New framework designed to align prefabricated housing with lender expectations.
The Domestic Building Contracts Amendment Bill 2025 passed its third reading in the Victorian Legislative Council on 11 September 2025, completing its journey through both houses of Parliament. While not yet in force, the Bill will become law once it receives Royal Assent and commencement dates are proclaimed, with a default start of 1 December 2026 for any unproclaimed sections.
The legislation introduces a suite of reforms to the Domestic Building Contracts Act 1995, with particular relevance to modular and prefabricated construction finance. Among the most significant measures are new rules linking progress payments to the actual proportion of building work completed, and recognising the role of modern methods of construction within contract regulation.
Clause 25 of the Bill substitutes section 40 of the Act to provide that:
“The specified contract types in subsection (2) are for major domestic building contracts to build a home, differentiated by how much of the cost reasonably incurred by the builder for the purposes of the contract is attributable to the use of prescribed modern methods of construction.”
This means that prefabricated housing projects in Victoria will have their own framework for staged payments, reflecting the way modular homes are assembled and delivered. Builders will be prohibited from demanding, recovering, or retaining amounts beyond the prescribed percentage for each stage, or beyond what directly relates to the progress of work.
The Explanatory Memorandum clarifies the intent, stating that the amendments will impose “a general proportionality requirement… so that a builder is prohibited from demanding, recovering or retaining any amount that does not directly relate to the progress of the building work.”
For offsite manufacturers and their financiers, this marks a shift away from traditional progress payment models that often disadvantaged prefabrication, where large portions of work are completed in factories before site assembly. By embedding proportionality into law, the Bill aligns payment structures with the realities of modular delivery and may provide lenders with greater confidence in financing projects tied to offsite construction.
The legislation also strengthens protections for building owners, with penalties attached to non-compliance. For specified modular contracts, demanding more than the prescribed percentage or progress-based amount will constitute an offence, attracting a maximum penalty of 50 penalty units. In Victoria, the value of a penalty unit is currently $197.06, meaning the fine could be up to $9,853.
Implications for modular construction finance
For Victoria’s modular and prefabricated housing sector, the Bill sets out a clearer legal pathway for financing arrangements. Linking staged payments to actual completion of prefabricated components and on-site works reduces uncertainty for both lenders and clients. In practical terms, this could open the door to more accessible prefabrication finance loans in Victoria, particularly as banks and non-bank lenders look for regulatory certainty before backing projects.
While Royal Assent is still pending, the passage of the Bill through Parliament signals that changes to how modular construction contracts are financed are imminent. By the time the legislation comes into effect—either through proclamation or automatically by December 2026—Victoria’s offsite sector is likely to have a more secure footing for scaling modular housing delivery.
Find the Victorian Government’s Bill (PDF) HERE
