Those unsold apartments or townhouses are called residual stock, and they can put a developer under financial pressure. Residual stock finance is a type of loan that gives you breathing space by unlocking the equity in those unsold units. With this option, you can cover existing debts and keep new projects moving without being stuck waiting for every single sale. Here are six key things to keep in mind.
1. What Residual Stock Finance Actually Means
Residual stock finance is tailored for developers who have completed a project but still have unsold stock. Rather than construction loans, this loan type can access capital for units that are a year or away from completion and haven’t been sold. Through the redemption of residual stock loans, you can settle a portion of your existing debt and simultaneously sell your remaining unsold properties at a regular rate.
2. How Lenders Assess Who Qualifies
When it comes to eligibility, lenders don’t just look at your income like they would with a standard home loan. If your development sits in a high-demand suburb, you’re more likely to secure stronger lending terms. Valuations on the unsold stock play a big role, too, since they’re used to determine the loan amount. To boost your chances, it helps to have detailed sales evidence and a clear marketing plan.
3. Why Loan-to-Value Ratio Matters
Loan-to-value ratio, often called LVR, is a ratio that sets out how much of the property’s value a lender is willing to fund, but in most cases, funding sits around 60% to 70% of the total value of your unsold units. Keep in mind that a lower LVR, on the other hand, usually gives you more flexibility. The key is to work out exactly how much equity you need to release, then plan so your loan stays manageable.
4. Interest Rates and Loan Terms Aren’t the Same Everywhere
Residual stock loans carry higher interest rates than traditional mortgages, in part because lenders consider them riskier. Loans are also shorter, which charges you with the task of selling off the remaining stock. Though that higher price point might be considered a downside, the flexibility is about keeping your projects moving and not feeling the pressure to discount just to clear debt.
5. Benefits Go Beyond Covering Cash Flow
The beauty of residual stock finance is in the fantastic cash flow, but it has other advantages too. With this kind of financing, you don’t have to panic-sell units at a low price to pay back loans. You can stick to your sales plan and hold out for the right buyers; that will insulate the value of your project. That breathing space permits early commitment to new projects before every last unit is sold.
6. Choosing the Right Finance Partner Makes a Difference
Some lenders get the changing nature of property development and take a pragmatic approach, but others come at it from a tougher angle. A seasoned finance pro will understand how to customise solutions, get you better terms and give you advice that works for your project. Working with the right partner not only allows you to capture as much value from your residual stock as possible.
Is Residual Stock Finance Worth Considering?
Residual stock finance helps provide breathing space to keep your cash flowing, helping you control sales without jumping into discounts that hurt overall returns. Of course, with the higher costs and risks, you need to weigh things carefully, but when pursued wisely, the benefits tend to outweigh the challenges. When you need to keep a project moving, it is the form of stock finance that keeps control with you.
Shikha Negi is a Content Writer at ztudium with expertise in writing and proofreading content. Having created more than 500 articles encompassing a diverse range of educational topics, from breaking news to in-depth analysis and long-form content, Shikha has a deep understanding of emerging trends in business, technology (including AI, blockchain, and the metaverse), and societal shifts, As the author at Sarvgyan News, Shikha has demonstrated expertise in crafting engaging and informative content tailored for various audiences, including students, educators, and professionals.
