To pre-sell or not to pre-sell

This month we focus on the topic of property development pre-sales.

One of the biggest issues for developers is whether to pre-sell stock in their development but in recent times this decision is being more and more driven by the lenders requirements rather than the developer’s choice.
Whilst the level of debt coverage in the form of fully qualifying pre-sales (10% deposit being cash or bank guarantee, no deposit bonds or overseas sales) may vary from bank to bank the reality is that at least 50% debt coverage and in some instances 100% debt coverage net of GST and agents’ commissions is becoming a condition precedent for approval.

There are a number of factors a developer needs to consider when deciding to pre-sell or not which include:
 Potential higher sale figure on completion of the development especially in a rising market
 Triggering GST payments
 Taxation issues / deferring profits into following financial years
 Wealth creation for developers wanting to hold stock long term

In most cases Banks require pre-sales however Finance Advocates Australia has recently structured several loan packages with the Banks where no pre-sales have been required. The alternative option to a Bank are second tier lenders who tend to be a little more flexible on their loan structures and pre-sales however this may come at a little more cost than a major bank.

Feel free to give Renato Sturma on 1300 780 196 a call to discuss your next project especially if require advice in regards to pre-sales.