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Development Finance

What Presales Are Required For Development Finance?

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Quick answer

Banks often want

100% debt cover

In qualifying presales on larger projects

  • Common presale test Debt cover
  • Typical buyer deposit 10%
  • Private lenders Often more flexible
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Presales are off the plan contracts signed before completion. In development finance, lenders use them to test market demand, project sell through, and likely debt repayment at the end of the build.

There is no universal presale rule. Some lenders want strong debt cover from qualifying contracts, while some smaller or private deals may proceed with lower presales or none at all.

What matters most is not only the number of contracts, but whether the contracts are acceptable to the lender, arm's length, supported by real deposits, and sufficient to de risk the facility.

Which projects are most likely to need presales?

Presale requirements are usually strongest where the lender is relying on end sales to clear the debt and where the project has a larger number of lots or apartments.

Typical projects where presales may be required include:

  • iconApartment developments
  • iconLarger townhouse projects
  • iconSubdivision projects with multiple end lots
  • iconMixed use developments sold down on completion
  • iconProjects in softer or more volatile markets
  • iconFirst time or thinly capitalised developer deals

How lenders assess presales

Lenders rarely look only at a raw count of contracts. They normally assess presales against the size of the debt and the quality of those contracts.

Common assessment steps may include:

  • 01 Check if contracts are arm's length
  • →
  • 02 Confirm deposit terms and buyer profile
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  • 03 Exclude unacceptable contracts if needed
  • →
  • 04 Measure debt cover from qualifying sales
  • →
  • 05 Stress test remaining stock and exit
  • →
  • 06 Approve with conditions or waive if not required

This is why two projects with the same number of presales can be treated very differently by different lenders.

What do lenders usually mean by presale requirements?

Presales are usually assessed in one of these ways:

Method 01

Debt cover test

The lender wants qualifying presales to cover a target percentage of the total debt. For larger bank style transactions this can be around 100 percent of debt.

Method 02

Sales percentage or lot count

Some lenders talk in terms of a portion of stock sold, such as enough units or lots pre committed before first drawdown or before vertical construction starts.

Typical bank style target 100% debt cover
  • Larger bank funded projects often need strong qualifying presales
  • Non bank and private lenders may accept lower presales or none

In practice, the required level depends on the lender, project size, buyer quality, location, product type and how strong the overall feasibility is.

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What counts as a qualifying presale?

Not every contract will necessarily be counted. Lenders usually filter presales for quality before allowing them toward debt cover.

Common qualifying features include:

  • iconSigned contract on acceptable terms
  • iconDeposit paid, often around 10 percent
  • iconArm's length purchaser rather than a related party
  • iconAcceptable purchaser concentration and residency profile
  • iconProduct type the lender is comfortable lending against
  • iconNo unusual rebate, side deed or weak sunset style terms
  • iconPresales spread across the project rather than clustered risk
  • iconEvidence that settlement risk is manageable
10 %
A 10 percent buyer deposit is a common benchmark in off the plan sales, but lenders still review the contract quality, buyer profile and settlement risk before treating a presale as fully qualifying.

When are presales usually required?

Presale requirements usually become more important as project scale and exit risk increase.

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Larger projects

Apartment and larger multi lot developments are the most likely to need presales before approval or before the lender allows full construction funding.

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Bank funded transactions

Traditional lenders tend to rely more heavily on strong qualifying presales, often targeting full debt cover in larger transactions.

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Smaller or private deals

Some townhouse, small builder and private lender transactions can proceed with reduced presale requirements or no presales where other aspects of the deal are very strong.

Common presale problems

Developers sometimes have contracts in hand but still fail the lender's presale test because the contracts are not strong enough or not counted in full.

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Too few qualifying sales

The project may have interest from buyers, but not enough signed and acceptable contracts to satisfy the lender.

Possible solutions include:
  • icon Delay drawdown until more stock is sold
  • icon Use a more flexible non bank lender
  • icon Reduce leverage and inject more equity
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Contracts not accepted

Related party sales, weak deposits or unusual contract terms can reduce how much of the presale book the lender will count.

Common issues include:
  • icon Low or unreleased deposit support
  • icon Buyer concentration risk
  • icon Related party or non arm's length contracts
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Market softening

Even with a decent presale book, lenders may tighten requirements if the local market weakens or settlement risk rises.

This may require:
  • icon Higher equity contribution
  • icon Lower leverage
  • icon Stronger evidence of residual stock value
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Assuming every project needs presales

Smaller projects and private lender transactions can sometimes proceed without formal presale hurdles if the deal is otherwise strong.

Alternative strengths may include:
  • icon Strong equity position
  • icon Proven developer and builder team
  • icon Clear refinance or sell down exit
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Steps To Meet Presale Requirements

Step

01

Confirm early whether the target lender needs debt cover, a lot count target, or no presales at all

Step

02

Launch a sales campaign matched to the lender's product and buyer profile preferences

Step

03

Make sure contracts and deposits are documented cleanly and are capable of being treated as qualifying sales

Step

04

Review buyer mix, contract concentration and related party exposure before lodging with the lender

Step

05

If presales are short, compare flexible lender options, lower leverage, or staged approvals

Step

06

Submit the full presale schedule together with feasibility, valuation, debt request and exit strategy

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Speak with a Development Finance Specialist

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Presale requirements vary widely between banks, non bank lenders and private capital providers, especially across apartments, townhouse projects and subdivisions.

A specialist can help map your project to lenders whose presale expectations match your stock type, location and timeline.

Speak with a finance specialist about your development project.

Submit the short form below and a development finance specialist will review your project and discuss possible funding options.

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