Land Subdivision Presales and Release Prices: How Lot Settlements Repay the Loan

What does a subdivision presale actually demonstrate?

A presale is a contract entered before the new lot can settle, commonly before titles are registered. It can demonstrate market demand and indicate future repayment proceeds, but its value to the credit assessment depends on the contract terms, purchaser, deposit, price and settlement conditions.

Presale deposits may be held in trust and unavailable for project expenditure. The balance of the contract price generally arrives only at settlement after titles, contractual conditions and purchaser funding are ready.

How lender release prices work for titled lots

The subdivision lender may hold a mortgage over the parent land and, after registration, the new lots. To transfer a sold lot to the purchaser, the lender generally needs to discharge or release its mortgage from that title.

The facility documents may specify a release price or release amount for each lot. This is the debt payment required before the lender consents to release that property. It is not necessarily the contract price or the lot’s valuation.

A schedule may use fixed amounts, a percentage of gross or net sale proceeds, a valuation allocation, a minimum amount, or the greater of multiple tests. The lender may also require its legal and discharge costs and satisfaction of other conditions.

Follow the money from contract price to debt reduction

Gross contract proceeds may be reduced by settlement adjustments, agent commission, legal costs, incentives, statutory amounts, taxes and the required lender payment. Developers should obtain tax and legal advice for the specific project.

1. Gross sale price. Contract amount before adjustments and deductions.
2. Deposit treatment. Confirm whether the deposit is credited, released, held or required to be dealt with in a particular way.
3. GST and statutory deductions. Apply the treatment advised by appropriate professionals.
4. Selling and settlement costs. Include commission, legal, adjustments and approved incentives.
5. Lender release payment. Remit the documented amount necessary to obtain the title release.
6. Net surplus or shortfall. Identify funds available to the borrower or the contribution required to settle.

The ATO states that purchasers of certain new residential premises and potential residential land may need to withhold an amount from the contract price and pay it directly to the ATO at settlement. This affects cash received by the supplier and should be modelled with professional advice.

Test the loan and security progressively

The repayment model should roll forward after each proposed settlement:

• opening principal, interest and secured costs;
• contract price and expected net proceeds for the settling lot;
• required release payment and settlement deductions;
• debt remaining after settlement;
• accepted value and mix of unsold security;
• remaining cost to complete, register or service later stages;
• interest and holding costs to the final exit; and
• final clean-up payment or refinance requirement.

Where a project is staged, sale proceeds from one stage may be needed to complete another. The lender will consider whether releasing surplus is consistent with the facility, remaining budget and security. Sale proceeds should not be committed elsewhere before their treatment is agreed.

ASIC’s private-credit work has highlighted the importance of transparent valuation and loan metrics in development lending. Current lot values and realistic net proceeds are more useful than an unsupported gross realisation value.

What if a presale is delayed, rescinded or below the release price?

The borrower should notify the lender promptly if a material contract changes. A delayed or rescinded settlement may extend the facility and interest period, reduce expected proceeds and affect other stage funding.

If the net sale proceeds are below the required lender amount, the shortfall may need to be addressed through borrower cash, an approved release variation, another settlement, additional security or another documented solution. A lower release should not be assumed.

Substituting a purchaser, changing incentives, extending settlement or using a nominee may also require lender review, depending on the facility and contract.

Progressive settlements across a titled residential stage

Situation: A developer completes civil works and registers twelve residential lots. Eight are under contract, and the subdivision lender has approved individual release prices.

First settlements: The purchaser’s representative attends to any applicable withholding and settlement adjustments. The agreed release amounts are paid to the lender, which discharges the sold titles.

Debt reduction: The facility balance falls after each settlement. The lender and borrower update the stock schedule, interest forecast and security remaining.

Variation: One contract is delayed and another settles below its original expected net proceeds because of an approved price change. The borrower addresses the resulting release shortfall before settlement.

Exit: Later lot sales repay the remaining balance, with a documented land or residual-stock refinance considered if the final sales period extends.

This example is hypothetical. It is not a completed client transaction, quoted loan structure or indication of approval.

Information for presale and release-price assessment

• complete lot schedule with stage, area, value and sale status;
• executed contracts, variations, nominations and purchaser details;
• deposit receipts, trust evidence, guarantees or deposit bonds;
• contract conditions, sunset dates and settlement periods;
• valuation and recent comparable lot sales;
• agent report, incentives and marketing evidence;
• current debt, facility maturity and interest forecast;
• proposed release-price schedule;
• estimated GST, legal, agent and settlement deductions;
• title-registration and settlement program;
• remaining development and authority costs; and
• base-case and downside repayment models.

The related subdivision budget guide and drawdown guide explain how the project is funded before settlements begin.

Common presale and release mistakes

1. Counting reservations as unconditional sales. Contract status and conditions must be clear.
2. Using gross contract value as net repayment. Withholding, costs and release requirements reduce cash.
3. Assuming deposits fund construction. Deposits may remain controlled until settlement.
4. Ignoring settlement order. Early lot releases change the quality and value of remaining security.
5. Leaving release prices until titles issue. The settlement model should be agreed before contracts become urgent.
6. Relying on every presale settling on time. Model delays, rescissions and price changes.

Subdivision presale and release questions