Renting out unsold units while you sell: what it does to GST, your lender and your exit

Yes, developers often rent out unsold new units while they keep selling, and it can take the sting out of holding costs. But a tenancy changes three things at once: the GST position on the units, the type of buyer you can sell to, and how a residual stock lender reads your exit. Sort all three before the first lease is signed.

This guide walks through each one so you can decide whether tenants help or hurt your sell-down.

Why do developers consider renting unsold stock?

Completed units cost money every week they sit empty. Strata levies, council rates, insurance, utilities and interest all keep running, and a residual stock loan is designed on the assumption that units will sell over a period of months, not days. When sales are slower than hoped, rent looks like an easy way to cover the gap.

There are other reasons too:

• Occupied buildings feel alive. A half-empty block can put off buyers walking through on a Saturday.
• Investor buyers like proven rent. A signed lease shows what the unit actually earns, not what an agent estimates.
• It buys time without discounting. If you believe prices will firm, rent lets you wait without the units bleeding cash.

Those benefits are real. The trouble is the side effects, which aren’t always obvious until the accountant or the lender points them out.

What happens to GST when you rent new residential units?

This is the part most developers underestimate.

When you build new residential premises to sell, the sale is generally a taxable supply. That’s why you could claim GST credits on construction costs along the way. Renting residential premises is different. The ATO explains that rent from residential premises is input taxed: you don’t include GST in the rent, and you can’t claim credits for GST in costs relating to the rental, such as an agent’s commission or repairs.

So once a unit is earning rent, it’s being used partly for an input-taxed purpose. The ATO’s guidance for builders on renting new premises before sale says you must adjust part of the GST credits you claimed, and that you need to be able to show you still intend to sell, for example by actively marketing the property. The size of that adjustment depends on your facts, so it needs to be worked out by your accountant before you decide, not after.

There’s also a longer-term line to be aware of. The ATO’s GST at settlement page lists residential premises that have been solely rented for more than five years among the sales where the buyer’s withholding obligation doesn’t apply, because by then they’re no longer treated as new. A few months of tenancy while you sell won’t get you there, but it shows the direction of travel: the longer units are rented, the more their tax character shifts.

How does a tenancy change your buyer pool?

Think about who buys the last few units in a project.

Buyer type	What they want	Effect of a tenant
Owner-occupier	To move in on settlement	Usually rules them out until the lease ends
First-home buyer	Vacant possession, often with tight finance deadlines	Same as above, and their lender may need vacant possession
Investor	Rental return and low vacancy	Can be attractive if the rent is market-level
Bulk buyer	Several units at a discount	A tenancy rarely matters; the price does

If presales collapsed and left you with stock you never planned to hold, our guide on what to do when a presale falls through covers the earlier decisions. If your remaining stock suits owner-occupiers, such as larger units, ground-floor courtyard units or townhouses, a long fixed-term lease can quietly stall your sell-down. If it suits investors, a good tenant at a fair rent may actually help.

The middle path many developers use is a short fixed term or a periodic tenancy, so a sale with vacant possession is still possible within a reasonable time. Notice periods for ending residential tenancies are set by each state’s tenancy laws, so check the rules where the units are before you promise a buyer an empty unit.

What will a residual stock lender want to see?

A residual stock lender has lent against the units on the basis that they’ll be sold and each sale will pay the loan down. Anything that changes how or when the units sell matters to it.

Expect the lender to:

1. Require its consent before any lease. Most loan documents restrict leasing the security without approval.
2. Look at the lease terms. Shorter terms and clauses that allow for a sale are easier to approve than a two-year fixed term.
3. Re-check the sell-down plan. If renting pushes settlements out, the loan term and the interest built into the facility may need to stretch too.
4. Ask how rent is handled. Some lenders want rent paid into a nominated account or applied to holding costs.
5. Keep the release prices. Rent rarely changes what each sale has to pay back.

If you’re already talking to lenders about refinancing your completed stock, mention a possible rental plan at the start. It’s far easier to build into the facility than to request later. You can outline your project for us here and we’ll factor it in from the first call.

Does the rent help you carry the loan?

It helps, but usually less than developers expect.

Residual stock facilities often have interest prepaid or capitalised, so there are no monthly repayments for rent to cover. Where rent really earns its keep is on the holding costs that sit outside the loan: strata levies, rates, insurance and maintenance. Remember too that agent’s management fees and repairs on rented units come without GST credits, because they relate to an input-taxed supply.

Land tax is another holding cost that doesn’t care whether a unit is rented. In NSW, for example, liability is based on the land you own at midnight on 31 December, and the tax isn’t reduced for owning the land for only part of the year. Holding several units across New Year can create a bill whether they’re tenanted or empty.

Illustrative example: renting two of five

Illustrative only. A small builder finishes five townhouses. Two settle on completion, one more within a month, and two remain unsold, each worth about $900k. The construction lender is repaid through a residual stock loan secured over the last two townhouses.

The agent advises that one townhouse, the end unit with a big courtyard, is an owner-occupier product and should stay vacant. The other, a mid-row unit, has had more investor interest. The builder asks the lender for consent to a six-month lease on the mid-row unit, gets the accountant to work out the GST credit adjustment in advance, and keeps both units listed for sale.

The vacant end unit sells to a family three months later. The tenanted unit sells to an investor shortly after the lease rolls onto a periodic arrangement. The rent covered the levies and rates on that unit while it waited, and because the lender knew the plan from day one, nothing had to be renegotiated midstream.

Questions to answer before you sign a lease

• Has your accountant calculated the GST credit adjustment for renting each unit?
• Does your residual stock lender consent, and on what lease terms?
• Who is the most likely buyer for each remaining unit: owner-occupier or investor?
• Will the lease term still let you deliver vacant possession within a sensible time?
• Is the rent at market level, so an investor buyer can rely on it?
• How will rent, management fees and repairs be accounted for?
• Have you budgeted for land tax if you’ll be holding stock at the taxing date?

For context on the build stage that comes before all of this, see construction and development finance. If the debt on the project has become messy, private mortgages can also be used to tidy it up while you sell.

Holding stock longer than planned? Let’s look at the numbers together

Deciding whether to rent, hold or sell the last few units is really a decision about time, and time is exactly what the right finance buys you. If you’re sitting on completed stock, we can look at what a property-secured facility between $20k and $5m could do for you.

The enquiry takes about a minute. There’s no credit check when you first enquire, and we won’t send your details to a crowd of lenders, so you won’t be fielding calls from people you’ve never heard of. A real person looks at your units, your sell-down plan and any rental arrangements, then calls you to talk it through. Please give accurate unit values, what’s owed and any leases in place, because those details decide which lender suits you first time.

Check your options for the last units →