Residual stock loans: when the building is finished but not sold

What a residual stock loan is

A residual stock loan is secured by finished, unsold dwellings in a completed project. It refinances what is left of the construction loan so the developer isn't forced to sell quickly or pay default interest. ASIC names residual stock financing as the usual way unsold units are financed once a development is complete.

When developers use one

• The construction loan is due and some stock is unsold or buyers haven't settled.
• Some presale buyers fell over at settlement and the units need to be resold.
• You'd rather hold out for better prices than discount to clear stock quickly.
• You want to release equity from finished stock to start your next project, where the lender allows it.

What lenders look at

• The finished value of the unsold stock, from a fresh valuation.
• Titles registered and occupancy certificates issued.
• The sales history: how many sold, at what prices, and how fast.
• Your plan and timeline to sell the rest, and whether some could be rented in the meantime.
• How the loan is repaid as each unit sells, usually with a set amount paid down per sale.

Weighing the cost

Residual stock loans are usually shorter term and priced above a standard investment loan, with interest often capitalised or paid from sales. The cost is weighed against what a quick discounted sale would lose, and against default interest if the construction loan runs past its term. Ask for the full cost: the rate, establishment and line fees, and any exit fees.