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Development Finance

What Are Presales In Property Development?

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Quick answer

Qualifying presales can support

50% to 100%

Of debt coverage targets, depending on lender policy and project type

  • Typical buyer deposit under off the plan contracts 10%
  • Major lender view Risk reduction
  • Core assessment issues Quality and coverage
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Presales are contracts exchanged before construction is complete, where buyers agree to purchase lots, apartments, townhouses or other finished stock once the project is delivered.

In development finance, presales are important because they can demonstrate future demand, reduce repayment risk and help lenders decide whether a project is bankable.

Lenders do not treat every pre sale contract the same. A contract usually needs to be genuine, enforceable, supported by an acceptable deposit and written with a buyer profile the lender is comfortable relying on

Where do presales matter most?

Presales are most common in developments where the end product will be sold down after completion and where lenders want evidence of buyer demand before advancing large construction facilities.

They are especially relevant where the project relies on multiple end sales to repay the debt rather than one refinance or one long term tenant outcome

Projects where presales commonly matter include:

  • iconTownhouse projects
  • iconApartment developments
  • iconHouse and land communities
  • iconMixed use residential projects
  • iconBroadacre land subdivisions
  • iconBuild to sell projects with many end buyers

How Presales Work

A presale is usually documented through an exchanged contract of sale with a deposit paid and contractual terms that remain acceptable to the lender.

Before counting a contract toward pre sale coverage, the lender will typically review both the buyer quality and the legal quality of the contract.

Typical presale assessment steps may include:

  • 01 Land settlement
  • →
  • 02 Slab stage
  • →
  • 03 Frame stage
  • →
  • 04 Lock-up stage
  • →
  • 05 Fit-out stage
  • →
  • 06 Completion

In many transactions the lender, valuer and legal advisers will all review presale evidence before it is accepted for construction funding purposes

Presale Coverage and Lender Tests

Presales are usually assessed on both a contract quality basis and a coverage basis:

Test 01

Qualifying presales

Only contracts that meet lender rules are counted, with attention to deposit held, purchaser profile, sunset clauses and special conditions

Test 02

Presale debt coverage

Lenders test whether accepted presales cover enough of the proposed debt or gross realisation to reduce repayment risk at completion

Indicative presale coverage range 50–100%
  • Some lenders accept moderate coverage on smaller or stronger deals
  • Others may want very high qualifying coverage on larger residential projects

There is no single presale rule across the market. The required level can vary by lender, product type, location, buyer mix, project size and broader market conditions.

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What Makes A Presale Acceptable?

Before relying on presales, lenders usually test whether the contracts are acceptable from both a legal and credit perspective

This helps determine whether the contracts genuinely reduce project risk

An acceptable presale review typically includes

  • iconSigned contract of sale
  • iconDeposit actually paid
  • iconAcceptable purchaser profile
  • iconLimited special conditions
  • iconReasonable sunset period
  • iconNo excessive rebates or incentives
  • iconAcceptable concentration by buyer type
  • iconConsistency with valuation assumptions
10 %
A 10 percent deposit is common in off the plan sales. Even so, lenders still assess whether the deposit is genuine, who holds it, and whether the contract remains enforceable if market conditions change.

Why Lenders Care About Presales

For many residential developments, lenders treat presales as an early indicator of take up, pricing support and exit strength

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Demand evidence

Presales can show that real buyers are willing to commit to the product before the project is built

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Exit support

They may support the lender's view that enough debt can be repaid from settlements after completion

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Not always mandatory

Some smaller, lower risk or strongly capitalised projects may still be funded with limited or no presales depending on lender appetite

Common problems

Many development finance applications are declined because important parts of the project are incomplete or not commercially viable

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Non qualifying contracts

A lender may reject contracts with unusual terms, weak deposits, long sunset periods or excessive incentives

Possible solutions include:
  • icon Tighten contract terms
  • icon Replace weak contracts with stronger buyers
  • icon Get lender input before marketing
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High foreign or related party exposure

Some lenders limit how much coverage can come from one buyer type, one related group or offshore purchasers

If concentration is too high, borrowers may need to secure:
  • icon More diversified buyer mix
  • icon More local owner occupier or investor demand
  • icon Alternative lenders with different policy
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Coverage below lender minimum

Even good contracts may not be enough if the total accepted presale value falls below lender policy for the project

Improving the sales program, equity position or lender strategy may help.
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Valuation mismatch

A lender may reduce reliance on presales if contract prices sit above supported market evidence or if the valuer takes a more conservative view

Solutions may include:
  • icon Refining pricing strategy
  • icon Providing stronger comparable sales evidence
  • icon Restructuring the debt request
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Steps To Build Acceptable Presales

Step

01

Set pricing, product mix and buyer strategy before launching sales

Step

02

Use contract documents and deposit arrangements acceptable to likely lenders

Step

03

Track exchanged contracts, deposits, incentives and buyer types carefully

Step

04

Review which presales are likely to qualify and which may be discounted

Step

05

Present the lender with the presale schedule, valuation support and debt coverage analysis

Step

06

Once the required coverage is achieved, construction funding can become far more achievable

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Speak with a Development Finance Specialist

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Presale requirements can vary significantly depending on the project size, product type, location, buyer profile and the lender you are targeting.

A specialist can review your contracts, coverage position and buyer mix to identify which lenders may be comfortable relying on your presales.

Speak with a finance specialist about your presale position.

Submit the short form below and a development finance specialist will review your contracts, likely lender requirements and possible funding options.

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Additional Questions

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