FINANCE FOR CONSTRUCTION/DEVELOPMENT CLIENTS
Residual Stock LoanWhy use PMA for your client’s Residual Stock Loan:
- They want to hold some stock to sell at a later date to maximise ROI
- They want to leverage against the residual stock to invest in other areas
- They need tranche reduction of debt
Residual Stock Loan Terms
Up to $5M
Up to 75% of the ‘as is’ value (max. LVR of 75% for major metro residential property, other security at lower LVRs)
Tailored to sales schedule
Residual Stock Loan
Residual stock loans are designed for property developers who have completed a project and wish to retain some of the remaining units or dwellings, rather than sell them, to settle the balance of their property development loan.
Some property developers choose to hold some of their stock to sell at a later date when market conditions are more promising and they can maximise their return on investment (ROI). Others may simply need more time; a common scenario for property developers planning more projects for the future. This is where residual stock financing can help with a development loan refinanced as a short-term loan. Residual stock can then be held until a more favourable time. Separate loans for each unit or dwelling can be set up, rather than a large single facility covering all residual stock. As each unit is sold, that particular facility is settled and closed.
Another scenario when a residual stock loan is a good option is when it is financially beneficial for a developer. For example, it may make sense to rent out the residual stock from a property development and take advantage of negative gearing benefits while paying interest only on a residual stock loan. Some traditional lenders offer Residual Stock loans but are limited to roughly 55% LVR because the rent from the residential dwellings must cover the loan payments (a debt cover ratio of 1.2 is needed). Where PMA differs is that we can offer a higher LVR loan and disregard the serviceability of the project. We are an option if the developer wants to maximise the cash-out today for their next project and they will sell in a relative shorter time period. Or, they may want to leverage against the residual stock to invest in other areas – for example, to buy their next development site – or to improve their balance sheet by retaining these assets, thereby enjoying long-term capital growth.