No Pre-Sale Construction Finance
Definition of No Pre-Sale Construction Finance
No pre-sale construction finance is a type of funding model for real estate development projects that is gaining popularity in recent years. In traditional models, developers would secure financing from lenders by pre-selling a certain percentage of units before construction begins. This pre-sale requirement was often a challenge for developers, especially in markets with slow sales, and could lead to significant delays in project timelines and often developers would need to discount prices in order to hit the required pre-sale targets.
As a result, over recent years, lenders have become more flexible in allowing lower pre-sale requirements and even no-pre-sales.
In order to consider lending with no pre-sales, lenders will focus on the reputation and track record of the developer as well as the net asset position and amount, location and other means of testing likely market acceptance and the amount of capital the developer has put into the project. A lender may require a higher amount of capital put in by the developer in order to consider funding with no pre-sales.
Benefits of No Pre-sale Construction Finance
The benefits of no pre-sale construction finance are many. For one, it allows developers to focus on the construction process without the added pressure of meeting pre-sale targets. This can lead to a more efficient and streamlined construction process, ultimately resulting in faster project completion times.
In addition, real estate purchasers usually like to know completion dates before committing and paying deposits on property. It is a very challenging sale process to convince a buyer to put down a deposit and go unconditional on a sale contract without a certain start date and confidence around when the project will be completed. By obtaining no-presale construction finance a developer is able to start a project sooner and market to potential buyers who can see progress on site and therefore have confidence around when the project will be completed.
Another benefit is that without the time pressure of needing to achieve certain sales hurdles, developers can hold out for the best prices and potentially achieve better profits for their projects.
Finally, developers can have the option of holding onto a certain number of units and renting them out which will assist with their future cashflow and also save on GST and capital gains tax payments that are required to be paid upon the sale of units.
Book Your No Pre-Sales Construction Finance Consultation
Overall, no pre-sale construction finance can be an attractive option for developers. By eliminating the pre-sale requirement and allowing developers to secure financing based on intrinsic factors, this model can lead to more efficient construction processes, greater profitability and less pressure for developers. Get in touch with our team today.