If you have ever tried to get development finance approved in Australia, you already know the presales question is one of the first things a lender asks. How many have you got? Are they unconditional? What percentage of the debt do they cover?
Get this wrong and your project stalls before construction even starts. Get it right, structure the contracts properly, hit the coverage threshold, and the lender releases funds with confidence. This guide breaks down exactly what lenders expect, how the maths works, and what your options are if you cannot hit 100% coverage.
What are presales in development finance?
A presale is a signed contract of sale for a dwelling within your development before construction is complete. In most cases, the buyer signs an off-the-plan contract, pays a deposit (typically 10% of the purchase price) and agrees to settle once the building is finished and titles are registered.
From the lender's perspective, presales serve one purpose: proof of exit. They show there are real buyers committed to purchasing completed stock, which means the developer can repay the loan once the project is done. Without that proof, the lender is lending against a feasibility spreadsheet and a hope that the market stays warm long enough to sell everything.
That is why presales carry so much weight. They convert a development loan from a speculative bet into a transaction backed by contracted revenue.
What counts as a qualifying presale?
Not every contract of sale qualifies as a presale in the lender's eyes. A qualifying presale typically needs to meet all of these criteria:
Bulk sales to a single investor or related-party contracts will often get discounted or excluded entirely. Lenders want diversified buyer risk, not one contract that accounts for half the project revenue.
Presales coverage ratios explained
The coverage ratio is the number lenders care about most. It tells them what proportion of their loan is covered by committed sales. The formula is simple, but which version the lender uses matters.
Coverage of senior debt
Total presales value divided by the senior debt (first mortgage) amount. This is the most common measure. If your senior debt is $2.6M and you have $2.6M in presales, that is 100% coverage. Most bank lenders use this method and require 100% coverage as a minimum.
Coverage of total development cost (TDC)
Total presales value divided by all project costs: land, construction, professional fees, statutory costs, interest and contingency. This is a higher bar. A project with $2.6M in senior debt but $3.5M in total cost would need $3.5M in presales for 100% TDC coverage. Some lenders use this measure for larger or higher-risk projects.
Coverage as a percentage of GRV
Some lenders express the presales requirement as a percentage of gross realisation value (GRV), the total revenue if everything sells at valuation. A requirement of "65% of GRV in presales" on a $4M GRV project means $2.6M in presales. Less common, but worth understanding because lenders do not always use the same metric.
Conditional vs unconditional presales
This distinction trips up more developers than almost anything else in the finance process. Not all signed contracts carry the same weight with a lender, and the difference between conditional and unconditional presales can determine whether your loan gets approved or sits in limbo.
Unconditional presales
- Buyer has no remaining conditions allowing them to exit the contract
- Finance, valuation and due diligence conditions have been satisfied or waived
- Deposit is typically paid and held in the trust account
- Lenders count these at full face value toward coverage
- Strongest position for loan approval
Conditional presales
- Buyer retains one or more conditions (finance, valuation, sunset clause)
- Contract can be terminated if conditions are not met or waived
- Deposit may be partially held or subject to refund
- Lenders may discount value to 50-70% of face value, or exclude entirely
- Weaker position, but still better than no presales at all
In practice, a bank lender asking for "100% presales coverage" almost always means 100% in unconditional contracts. If you show up with $2.6M in conditional contracts, the lender might count them at $1.3M to $1.8M, leaving a gap you need to fill with equity, additional presales, or a different funding structure.
Some developers learn this the hard way. They spend months marketing off-the-plan, collect a stack of subject-to-finance contracts, walk into the lender meeting confident they have hit the target, and find out the lender values those contracts at half what they expected. The project timeline slips by months while they rework the numbers.
Presales worked example: $4M GRV townhouse project
Numbers make this easier to understand. Here is a simplified reference example showing how presales coverage works on a small townhouse development. These are approximate figures for illustration only.
In this example, selling three of four townhouses at $1M each gives $3M in presales, which exceeds the $2.6M senior debt. That is 115% debt coverage, comfortably above the 100% threshold. The lender has contracted revenue to cover the entire loan and then some.
But if only two townhouses are pre-sold ($2M), coverage drops to 77% of senior debt. A bank lender will not proceed. A non-bank lender might, but with tighter conditions, higher rates and potentially a requirement for the developer to inject more equity or secure mezzanine finance to bridge the gap.
What lenders assess beyond the presales number
Presales are essential, but they are not the only thing the lender reviews. A development loan application is assessed as a complete package, and weak points elsewhere can undermine even strong presales coverage.
First-time developers face significantly more scrutiny. Lenders want to see completed projects of similar scale and type. If you have built four townhouses before, a four-townhouse project makes sense. Jumping from a duplex to a 20-unit apartment block raises red flags regardless of presales.
The lender runs its own feasibility, often more conservative than yours. Development margin (profit as a percentage of TDC) typically needs to sit above 15 to 20% for most bank lenders. If the margin is too thin, a cost blowout or market shift could wipe out the profit and put the loan at risk.
The builder needs to be licensed, insured, financially stable and experienced with the project type. Some lenders maintain approved builder panels. An unknown or financially weak builder can derail the application even with 100% presales, because the lender needs confidence the project will actually get built.
A site in an established area with strong comparable sales supports the valuation and reduces the lender's risk. A greenfield site in a softening market with no comparable evidence is harder to fund. Location drives the valuation, and the valuation drives the loan amount.
Most senior development lenders cap lending at 60 to 70% of gross realisation value. A project with $4M in GRV might access $2.4M to $2.8M in senior debt. The balance comes from developer equity, and any shortfall above that from mezzanine finance or joint venture equity.
Development approval (DA) needs to be in place. Some lenders will consider projects at the DA-lodged stage, but most want an approved DA before they commit capital. Outstanding conditions of consent, appeals, or neighbour objections can delay or kill an application.
Can you get development finance without presales?
Yes, but the window is narrow and the trade-offs are real.
A small number of non-bank and private lenders will fund projects with reduced or zero presales. These deals typically have one thing in common: the lender is compensating for the absence of contracted revenue by reducing its risk elsewhere. That means more developer equity, lower leverage, higher interest rates and a very strong feasibility story.
| Lender type | Typical presales requirement | Trade-offs |
|---|---|---|
| Major bank | 100% of senior debt, unconditional | Lowest rate, strictest criteria, longest assessment time |
| Second-tier bank | 80-100% of senior debt | Slightly higher rate, more flexible on project type |
| Non-bank lender | 50-80% of senior debt | Higher rate, faster decisions, may accept conditional presales |
| Private / specialist lender | 0-50% or no presales | Highest rate (often 10-15%+), lower LVR, strong equity and track record required |
The no-presales path works best for experienced developers building small projects (typically under 10 dwellings) in locations with strong, proven demand. A first-time developer asking for no-presales finance on a 30-unit apartment tower in a fringe suburb is not going to find many takers.
One common strategy is to start with a private or non-bank lender for the initial construction phase while marketing off-the-plan, then refinance to a cheaper senior lender once presales hit the required threshold. It costs more upfront, but it keeps the project moving.
Common presales mistakes developers make
Most presales problems are avoidable. They usually come down to assumptions about what lenders accept, timing misjudgments, or contract structures that do not hold up under lender scrutiny.
Assuming conditional contracts count at full value
A subject-to-finance contract might be worth 50 to 70 cents on the dollar in the lender's eyes. If your coverage calculation assumes full value, you will come up short at credit assessment and need to scramble for more presales or restructure the funding.
Confirm with your broker exactly how the lender will value each contract before counting it toward coverage.
Leaving presales too late in the project timeline
Presales take time. Marketing off-the-plan, negotiating contracts, getting deposits paid and conditions satisfied does not happen overnight. Developers who wait until the DA is approved to start marketing often face months of delay before they hit the presales threshold and can draw down construction funds.
Start your presales marketing campaign as early as possible, ideally before or during the DA process.
Selling too many units to a single buyer
Bulk sales concentrate settlement risk. If one buyer takes three of your four presales and then cannot settle, you lose 75% of your coverage in one hit. Most lenders prefer diversified buyer exposure and may cap the percentage of GRV any single buyer can represent.
Spread presales across multiple independent buyers wherever possible.
Setting presale prices too high or too low
Prices that sit above the independent valuation will get flagged. Prices that sit too far below raise questions about demand and project viability. The lender wants presale prices that are consistent with the sworn valuation and comparable market evidence.
Align presale pricing with your quantity surveyor's cost estimate and the valuer's market assessment.
When should developers get finance help?
The right time to talk to a development finance specialist is before you commit to a site purchase, not after you have spent six months on plans and DA and realised the presales threshold is higher than you expected.
A development finance specialist can assess your project feasibility, presales position and funding structure, then identify which lenders are most likely to approve based on your specific numbers and experience level.
