Buying your next development site before the last project has sold out

Most developers fund a new site before the last project sells out by unlocking the equity sitting in their unsold units. That’s done with a residual stock loan that releases cash, a bridging loan over both the stock and the new site, or a second mortgage. Whichever you choose, the deal stands or falls on peak debt and how fast the old stock really sells.

The timing problem is familiar. Your last project is finished and mostly sold, but the profit is locked in a few unsold units. Then an agent calls about a site that fits your next project perfectly, with a short settlement. This guide covers how to fund it without betting both projects on one optimistic sales forecast.

Why is the next site always available at the wrong time?

Because the market for sites and the market for finished units don’t run on the same clock. Good development sites often sell off-market or through quick campaigns to buyers who can move. Finished units sell on the buyer’s timetable, which slows whenever interest rates move, confidence dips or a few similar projects finish nearby.

The result is that a developer can be asset-rich and cash-poor at exactly the moment they need a deposit. Waiting for the sell-down to finish is safe, but the site may go to someone else. Funding it early is possible, but only if the numbers survive a slower sell-down than you’d like.

What are the three main ways to fund it?

Approach	How it works	Suits	Watch out for
Equity release from unsold stock	A residual stock loan repays the construction lender and releases extra cash	Stock worth well more than its debt	Releasing too much leaves the stock loan too tight
Bridging loan over both	One facility secured over the new site and the unsold units, repaid by sales	Short settlements on the new site	Peak debt across both; ties the two projects together
Second mortgage	A lender sits behind existing debt on the stock or another property	Smaller deposits and costs	Needs the first lender’s consent; usually shorter terms

Some developers also use a home equity business loan over property they own personally, keeping the projects separate but putting the home on the line. That’s a personal decision as much as a financial one.

How do lenders work out peak debt across two projects?

Peak debt is everything you owe at the point where you hold both the new site and the unsold stock. Lenders build it up line by line:

• The debt still owing on the unsold units
• The purchase price of the new site, less any cash you’re contributing
• Stamp duty and legal costs on the new site
• Interest for the expected term, if it’s prepaid or capitalised
• Fees on the new facility

They then compare that figure with the combined value of the security. The comfort they need depends on the property types, the location and how solid the sales evidence is for the remaining units. A vacant site in a strong suburb and three finished townhouses with recent comparable sales is an easier story than a rural block and a slow-selling apartment.

The second test is the end debt: what’s left once the old stock has sold. That remaining balance, secured only by the new site, needs to be something a construction and development lender or a land lender would be comfortable taking out when the next project starts.

If you’ve got a site in your sights and stock still to sell, you can run the scenario past us before you sign the contract.

What’s the risk of tying both projects together?

When one facility is secured over both the old stock and the new site, the two projects share a fate. That’s not automatically bad, and it’s often what makes the deal possible. But be clear-eyed about what it means.

A slow sell-down affects the new project. If the units take longer to sell, the bridge runs longer, interest builds and the end debt on the new site grows. That can squeeze what you can borrow for construction later.

Releases need managing. As each unit sells, the lender needs enough from the sale to keep the rest of the loan well covered. If you need some of each sale’s proceeds for the new project, agree that upfront.

One lender, two decisions. If anything goes wrong on one property, the lender holding security over both has a say in both.

The answer is a buffer: a longer term than the agent’s estimate, a sale price assumption below your asking price, and a cash reserve for holding costs.

Which taxes and costs change when you hold both?

Land tax. In NSW, land tax is based on what you own at midnight on 31 December, the threshold applies to the combined value of all your non-exempt land, and the tax isn’t reduced for part-year ownership. Buying a site in November while still holding units can push your total holdings well over the threshold for the whole year. Other states have their own dates and rules, so check where your properties are.

GST on the site. The ATO’s GST at settlement rules cover potential residential land, but list an exclusion where that land is sold to a GST-registered business acquiring it for a creditable purpose. Whether the exclusion applies, and whether the margin scheme is available on your eventual sales, depends on the contract and your registration, so get advice before exchange.

Stamp duty. Payable on the new site in addition to the deposit, and generally not something a mainstream lender will add to the loan.

Illustrative example: three townhouses and a corner block

Illustrative only. A builder-developer has three unsold townhouses from a completed project, each worth about $1m, with $1.2m owing to the construction lender. A corner block suitable for four townhouses comes up for $1.6m with a 30-day settlement.

A bridging facility secured over the three townhouses and the new block repays the construction lender, funds the purchase and duty, and has interest prepaid for 12 months. Peak debt sits comfortably inside the combined security. The lender sets a release figure for each townhouse sale so the facility reduces steadily.

The townhouses sell over eight months. After the third settles, the debt left is secured over the corner block alone, and the builder refinances it into a construction facility for the next project. The sell-down took two months longer than the agent predicted, but because the term had a buffer built in, nothing had to be renegotiated.

Questions to answer before you exchange on the new site

• What is the realistic sale price of each unsold unit today, based on recent settlements rather than the original price list?
• How long has the agent said the remaining units will take, and what happens to your numbers if that doubles?
• What is the peak debt across both properties, including duty, fees and interest for the whole term?
• What end debt will be left on the new site once the stock is gone, and who will refinance it?
• Does the contract on the new site give you enough time to arrange finance, or will you need to exchange unconditionally?
• What will you hold on the land tax date, and have you budgeted for the bill?
• If one unit doesn’t sell at all, could you hold it, rent it or refinance it without putting the new project at risk?

If any answer makes you uncomfortable, that’s useful information. It may mean a smaller deposit with a longer settlement, an option agreement instead of an outright purchase, or a partner for the next project. Finance should fit around a sound plan, not paper over a shaky one.

Found the next site before the last one’s sold? Let’s talk it through

Spotting the next opportunity while you’re still selling the last one is a sign of a developer who’s doing things right. The question is simply whether the stock and the site together can carry the bridge, with room to spare. Property-secured facilities run from $20k to $5m, on residential or commercial security.

The enquiry takes about 60 seconds, and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so you’ll hear from us, not a dozen strangers. A real person looks at both projects, the debt and the timing, then calls you to talk it through. Please fill in values, debts and settlement dates accurately so we can match you with the right lender first time.

See if a bridge works for your next project →