Quick answer
A residual stock loan refinances completed but unsold units, townhouses or lots after a development finishes. It repays the construction lender, which often wants out soon after completion, and gives the developer time to sell the remaining stock at proper prices or to release equity for the next project. Lenders look at the value of the unsold stock, how quickly similar property is selling, and the developer's plan to sell down.
Key points
- It's a post-completion refinance of unsold stock, not a construction loan.
- The main point is time: selling well instead of discounting to meet a deadline.
- Lenders size it on the value of the unsold units and how quickly they're likely to sell.
- Each sale usually pays down the loan, with a release price agreed per unit.
- Property-secured range
- $20k – $5m
- Security
- Completed residential or commercial units
- Typical exit
- Sale of each unit, or refinance
- Purpose
- Business purposes only
A residual stock loan is the finance that takes over when the build is finished but the selling isn’t. The construction lender wants to be repaid at completion; the market doesn’t always cooperate. Rather than slash prices to clear the last units by a deadline, the developer refinances them into a facility designed to sit in place while they sell. It turns a rushed sale into an orderly one.
Why do developers end up with residual stock?
Very few projects sell out exactly on completion. The usual reasons:
- Presales fell over. A buyer couldn’t settle, couldn’t get finance or the property came in below the contract price at their bank.
- The market moved. Prices or buyer demand shifted between launch and completion.
- The developer held back stock on purpose, expecting better prices once buyers could walk through a finished product.
- Some units were always going to be harder to sell: the ground-floor unit near the bin store, the one without a car space.
None of those mean the project has failed. They mean the timing of the debt and the timing of the sales don’t line up, which is exactly the problem a residual stock loan solves.
How does a residual stock loan work?
The new lender takes security over the unsold units, pays out the construction lender and sets up a facility for an agreed term, often long enough to sell the remaining stock without pressure. Each time a unit settles, a set amount, the release price, goes to the lender, who discharges its security over that unit. The balance shrinks as stock sells.
Interest may be capitalised or prepaid, so the developer isn’t funding monthly repayments from cash that isn’t coming in yet. Some facilities also release equity on day one, if the stock is worth comfortably more than the construction debt being repaid.
If you’re sitting on finished stock and the construction lender is getting restless, tell us where the project is at and we’ll look at the options.
What do lenders look at?
| What they check | Why it matters |
|---|---|
| Number, type and value of unsold units | Sets how much can be lent and how concentrated the risk is |
| Recent sales in the project and nearby | Shows whether the asking prices are realistic |
| Why the stock hasn’t sold | A price issue, a market issue and a product issue are read very differently |
| The construction debt being repaid | Must be cleared in full for the new lender to take its security |
| Your sell-down plan | Agent, marketing, price list and expected timeframe |
| Strata, occupation certificate and defects | Units need to be legally complete and ready to settle |
Lenders are also wary of a building with too many units for sale in a thin market. Twelve unsold apartments in a small regional town is a different proposition from four townhouses in a busy suburb.
How does residual stock finance compare with the alternatives?
| Option | When it fits | Trade-off |
|---|---|---|
| Residual stock loan | Several completed units, a realistic sell-down plan | Built for this exact purpose; costs money while units sit |
| Discount and sell quickly | The lender is pressing and you need it done now | Can cost far more in lost price than finance would |
| Stay with the construction lender | Only a unit or two left and sales are close | May attract default interest or extension fees |
| Bridging loan | A single property with a sale imminent | Shorter, built around one exit rather than a portfolio |
| Long-term investment loan | You’ve decided to hold and rent the units | Different assessment, based on rent and your income |
What costs and taxes should you plan for?
Pricing on residual stock loans is set on the deal itself: the quality and location of the stock, how much is borrowed against it, the sell-down plan and the developer’s track record. Expect an establishment fee, interest (often capitalised or prepaid), legal costs, and discharge fees as each unit sells.
Two holding issues deserve planning:
GST at settlement. Buyers of new residential premises generally have to withhold GST from the price and pay it to the ATO at settlement. For a fully taxable sale, the ATO’s guide for purchasers sets the withholding at one-eleventh of the contract price. Your release prices need to work on the cash you actually receive, not the headline price.
Land tax. Unsold stock can attract state land tax. In NSW, liability is based on what you own at midnight on 31 December, and the tax isn’t reduced for part-year ownership. Holding stock across New Year adds a real cost, so factor it into the decision to hold or sell.
Illustrative example: six townhouses, two left
Illustrative example: a small building company completes six townhouses. Four settle within a month, but two presales fall through when the buyers’ finance is declined. The construction loan has $1.1m still owing, and the lender wants it repaid within 60 days. The two remaining townhouses are worth around $850k each.
Rather than discount both to sell inside two months, the builder takes a residual stock loan secured over the two townhouses. It repays the construction lender in full and releases $200k of equity, which goes towards the deposit on the next site. One townhouse sells four months later and the other after seven. Each settlement clears its release price, and the loan is repaid in full from the second sale, without the builder having to accept a fire-sale price.
Common mistakes with residual stock
- Leaving it too late. Approach a residual stock lender before the construction loan expires, not after it’s in default.
- Unrealistic prices. If a unit hasn’t sold in six months at a given price, the lender will want to know why you expect it to now.
- Ignoring defects. Unresolved defects or a missing occupation certificate can stop settlements and stall the whole plan.
- Forgetting the next project. Releasing equity is useful, but not if it leaves the remaining loan too tight to cover the stock.
For the build stage itself, see construction and development finance. If the project debt is spread across several lenders, business debt refinance explains how consolidation works.
Finished building, not finished selling?
If you’ve got completed units, a construction lender wanting its money back and a clear idea of what the stock is worth, the enquiry form is the place to start. It takes roughly a minute, there’s no credit check at that point, and your details stay with us rather than being handed out to every lender in the market. A real person looks over the project and phones you to discuss it. Please be precise about the number of unsold units, their values and what’s owing, so we can steer you to the right facility at the first go.
Frequently asked questions
Why would I need a residual stock loan if the project is finished?
Construction facilities are designed to be repaid when the build is complete. If some units haven't sold, the construction lender may charge default interest or push for a quick sale. A residual stock loan replaces it with a facility designed to sit in place while you sell.
How much can I borrow against unsold stock?
It depends on the value of the units, their location, how many there are and how quickly similar property is selling. Lenders lend a share of the value, not all of it. Within property-secured lending, the range is $20k to $5m.
What is a release price?
A release price is the amount the lender needs from each sale before it will discharge its security over that unit. It's usually set so the loan reduces faster than the security, which protects the lender and keeps the remaining loan comfortably covered.
Can I use a residual stock loan to release equity for my next project?
Often, yes. If the stock is worth well more than the construction debt, the new loan can repay that lender and release some equity. Lenders will want to know what the money is for and that the sell-down plan still works.
Can I rent the units out while I wait to sell?
Some developers do, and rental income can help with holding costs. Talk to your accountant before you sign any leases, because renting units before selling them can change the tax picture on the eventual sale. Tell your lender too, as tenancies can affect how and when a unit can be sold.