Sell or hold your finished townhouses? How the finance changes when you keep some stock

Holding some finished stock instead of selling can make sense, but the construction loan still has to be repaid on completion. The units you keep need a new home for their debt: a residual stock loan, a longer-term loan, or security over other property. Lenders will want completion documents, a fresh valuation and, for a long-term loan, rent that supports repayments. Get tax advice first, because holding new homes can change the GST picture.

It’s one of the most common conversations at the end of a small development. The market’s soft, a buyer has fallen through, or the rent on a brand-new townhouse looks attractive. Keeping one or two units feels like a way to build long-term wealth from the project. It can be, as long as the finance and tax are planned before the decision, not after.

Why can’t the construction loan just stay in place?

A construction facility is built for one job: funding the build until completion and sale. It has a fixed term, is priced for construction risk and is repaid from sales settlements. Once the project is complete and the term ends, the lender expects to be paid out, whether the units have sold or not.

So “holding” really means replacing the construction loan on the units you keep with a different kind of loan. Our page on construction and development finance explains how the facility ends; the question here is what comes after.

What are your finance options for held stock?

Option	What it’s for	What the lender looks at	Typical fit
Residual stock loan	Time to sell completed units without a fire sale	Valuation, sales evidence, your selling plan	You still intend to sell, just not yet
Longer-term investment or commercial loan	Keeping the units for the long term	Valuation, rent, your income and other debts	You’ve decided to hold
Property-secured loan over other assets	Paying down the construction loan with security elsewhere	The other property’s value and your exit	You need flexibility while deciding
Partial sale plus refinance	Selling some units to clear most of the debt, refinancing the rest	Sales proceeds and the remaining units’ value	The most common middle path

A residual stock loan is often the bridge. It gives you time to sell into a better market or to decide whether to hold, without being forced to sell at the first price offered. Once you’ve decided to keep units for good, a longer-term loan is usually cheaper to run, but it’ll be assessed more like an investment loan than a development loan.

What will a refinance lender ask for?

Expect the lender to want the project to look finished in every sense:

• Completion documents. Occupation certificate or your state’s equivalent, final inspection sign-offs and the builder’s warranty certificates.
• Registered titles. Separate titles for each unit, or strata registration where relevant.
• A fresh valuation. Based on current comparable sales, which may differ from the prices in your original feasibility.
• Rental evidence. A signed lease or an agent’s rental appraisal, if the loan will be assessed on rent.
• Your wider position. Other debts, other income and, for a company or trust, the entity’s financials.
• Settlement history. Evidence of the units already sold and what was repaid to the construction lender.

If the units are commercial, such as small offices or warehouse units built for sale, a commercial property loan assessed on lease income may suit better than a residential investment loan.

One thing to prepare for is a valuation gap. Your feasibility may have assumed a sale price set when the market was stronger, or one based on off-the-plan buyers paying for a new home. A valuer looking at the finished units today will rely on recent comparable sales, and a refinance lender will lend against that figure, not your target. If the gap is large, the refinance may not fully clear the construction loan, and you’ll need another source for the difference: cash, a partial sale, or security over other property. Running the numbers at a conservative value before you commit to holding avoids an unpleasant surprise in the last month of the construction term.

If you’re weighing up which units to sell and which to keep, and want to know what refinancing the keepers would look like, start with a short enquiry. There’s no credit check when you first enquire.

What tax and holding costs change when you hold?

This is the part to work through with your accountant before you tell a tenant they can move in.

GST. On sale, new residential premises are generally subject to GST, and buyers usually withhold GST at settlement and pay it to the ATO, one-eleventh of the price for a fully taxable sale. If you build to sell and then rent instead, your GST position on those units can change, including any GST credits you claimed during construction. The rules are technical, and the consequences can be large, so get advice on your specific facts.

Income tax. Whether a held unit is treated as trading stock or as an investment affects how profit is taxed when you eventually sell. Your accountant should look at your intentions, structure and history.

Holding costs. Business.gov.au notes that land tax is an annual tax paid to state and territory governments, in every state and territory except the Northern Territory, and that councils charge rates on property you own. Add insurance, strata levies if relevant, maintenance, letting fees and interest. A held unit that rents well can still be cash-flow negative once all of these are counted.

Clearance certificates. When you do eventually sell, you’ll need an ATO clearance certificate for the sale. Our guide to clearance certificates for developers explains why that matters.

Illustrative example: six townhouses, two kept

Illustrative only. A small engineering consultancy has built six townhouses through a development company. The construction loan balance at completion is $3.1m. Four townhouses sell for a combined $3.1m, and after GST withholding and selling costs, the proceeds reduce the construction loan to $420k.

The directors decide to keep the last two townhouses, valued at $1.7m together, and lease them. A longer-term lender refinances the remaining $420k plus some extra working capital, secured over both townhouses and assessed on the rental income and the directors’ guarantees. The construction lender is paid out in full.

Before signing any leases, the directors’ accountant reviews the GST and income tax position on renting new homes that were built for sale. The modelling shows the extra tax cost, which the directors decide is worth it for the long-term rental yield. A year later, they use some of the equity in the two held townhouses as the contribution for their next site, through a first mortgage business loan over one of them.

How do you decide whether to sell or hold?

A simple test helps cut through the emotion:

1. Does holding still work after tax? Include the GST and income tax effect, not just the rent.
2. Does the rent cover the holding costs? Interest, land tax, rates, insurance and maintenance.
3. Does it tie up equity you need for the next project? Held stock can be used as security, but only up to what lenders will lend.
4. Is the market soft or just slow? A residual stock loan might buy time to sell well rather than forcing a hold.
5. Does your structure suit holding? A company set up for one development may not be the best long-term owner. Ask your adviser.

If the answers line up, holding can turn one development into a lasting asset. If they don’t, selling and recycling the capital into the next project is often the stronger move.

Holding, selling or somewhere in between? Let’s map the finance

Whether you need time to sell, want to refinance the units you’re keeping, or plan to use held stock to fund the next site, property-secured loans from $20k to $5m over residential or commercial property can help for business purposes.

You can tell us about the project in around a minute, and there’s no credit check at that first step. Your enquiry isn’t sent out to a pile of lenders; it stays with us, and someone who understands development exits reviews the units, the loan balance and your plans before calling you. Please be accurate about the remaining debt, valuations and any leases, so we can show you the option that suits your decision first time.

See what your finished stock could qualify for →