Residual stock loans: buying time to sell the last units properly

Picture a 14-apartment project in a regional city. The building is finished, the strata plan has registered and nine buyers have settled. Five apartments are left, the sales market has gone quiet for the season, and the construction facility matures in seven weeks. The construction lender wants its money; the developer wants to avoid selling five apartments at a discount just to meet a date on a contract.

That gap is what residual stock finance is for. It replaces the construction debt with a new facility secured only over the unsold lots, so the sales campaign can run at a sensible pace.

Why construction lenders want out at completion

A construction facility is priced and staffed for building risk: progress draws, quantity surveyors, monthly reporting. Once the building is done that machinery is no longer needed, but the facility is still running at construction pricing, and many carry default terms if the balance isn’t cleared by the maturity date.

Construction lenders also tend to treat completed stock as the riskiest part of their book, because whatever hasn’t sold is what the market has, so far, declined. A residual stock lender takes a different view: the building risk has gone, the titles exist, and the question is simply whether these particular units will sell at sensible prices within a reasonable time.

How a residual stock facility works

The new lender takes a first mortgage over each unsold lot and pays out the construction lender. From there:

1. Each sale reduces the debt. When a unit settles, an agreed amount, called the release price, goes to the lender before its mortgage over that lot is discharged.
2. Interest is commonly capitalised or prepaid. Many facilities hold back an interest reserve so no monthly repayments are due while the stock sells. Read our note on capitalised interest to see how that grows the balance.
3. The term is short. Six to twenty-four months is typical, with sales milestones the lender monitors along the way.
4. The last units clear the balance. Once the debt is repaid, any remaining stock is unencumbered and the profit is yours.

If you’d like a second view on whether your remaining stock and timeline would suit this structure, send us the basics and someone will look at it.

How do lenders value unsold stock?

This is where most of the negotiation happens.

• GST-exclusive values. For new residential stock, valuers and lenders usually work on prices excluding GST, because that’s what the developer actually keeps from each sale.
• Individual sales versus one line. A valuer may give two figures: the sum of what each unit would fetch sold individually, and a lower figure for selling all remaining stock to one buyer at once. Some lenders size the loan on the lower number.
• Which units are left. The ground-floor apartment beside the bin room and the top-floor penthouse carry very different sale risks. A lender will look closely at whether the leftovers are leftovers for a reason.

What lenders check

Lender focus	What they look for
Completion	Occupation certificate issued, titles registered, defects largely resolved
Sales evidence	Settled prices to date, any cancelled contracts, current enquiry levels
Remaining stock	Number of lots, mix, position in the building and asking prices
Holding costs	Strata levies, council rates, land tax and insurance on unsold lots
Exit plan	Sales agent, campaign, realistic time to sell, and a fallback such as leasing
Borrower	Track record on this project and any others, plus guarantees offered

The costs and dates that eat the margin

The obvious costs are establishment fees, interest, valuation and legal fees. The less obvious ones arrive on the calendar:

• Land tax snapshot dates. NSW and Victoria both fix each year’s land tax by looking at the owner’s holdings as the clock strikes midnight on 31 December. Any lots still in your name at that moment can produce a land tax bill for the following year.
• Victoria’s vacant residential land tax. New dwellings that haven’t been occupied or changed hands can be exempt for a limited period, with a maximum of three years where the owner has made genuine and reasonable efforts to sell, according to the State Revenue Office. After that, the tax applies until sale.
• Clearance certificates, sale by sale. For contracts signed from 1 January 2025, purchasers must withhold 15% of the price of any property unless the seller provides an ATO clearance certificate. Make sure each selling entity holds a current certificate, or settlement proceeds can arrive short.
• Strata levies. The developer pays levies on every lot it still owns, and these add up fast in buildings with lifts, pools or concierge services.

Put all of that into a total-dollar figure for the expected sell-down period, then do it again for a slower scenario. Our bridging loan calculator is a useful way to frame the holding-cost side.

Strengths and drawbacks

Strengths: it removes the deadline pressure of an expiring construction loan, lets you hold out for fair prices, and can release some equity from completed stock to repay a mezzanine lender or seed your next project.

Drawbacks: the loan is sized on stock that the market has so far been slow to buy, so the amount may fall short of the full construction balance. Release prices can be set high enough that each sale leaves you little cash until the very end.

How to apply

1. Pull together the settlement history, remaining stock list and current asking prices.
2. Get a recent valuation or be ready for the lender to order one.
3. Prepare a schedule of holding costs and a realistic sales timeline from your agent.
4. Start talking to lenders at least two to three months before your construction facility matures. Approaching them in the final fortnight shrinks your options.

Other ways to deal with unsold stock

• Negotiate an extension with your construction lender, if it’s willing.
• Refinance into investment loans and hold the units as rentals, if the rent covers the debt.
• Sell in one line to an investor or fund, accepting a discount for speed.
• A short bridging loan against a handful of lots if only a small balance remains.

For the funding that comes before this stage, see construction and development finance, and for an industry view, our page on property developers.

Construction loan nearly due and units still on the market?

If your construction facility is close to maturity and the last units are taking longer than planned, you aren’t the first developer in that position, and it doesn’t have to end in a fire sale. We regularly look at completed-project scenarios and can tell you quickly whether residual stock finance or another structure is the better fit.

The enquiry form asks a handful of questions and is done in about sixty seconds, and sending it won’t touch your credit history. You won’t be passed along to a crowd of funders. A specialist reads your project and calls you directly. Enter the stock count, debt and values as accurately as you can, because that’s what lets us recommend something workable straight away.

Ask about funding your unsold stock →