Residual Stock Loans in Australia: How Developers Refinance Unsold Property

A residual stock loan is a short-term facility that refinances a property developer's construction debt once a project is complete but stock remains unsold. It gives the developer room to sell the remaining units without a fire sale. Facilities usually sit at 60% to 70% LVR of the completed value, run 12 to 24 months, and price from 8% to 12% per annum, subject to lender assessment.

• A residual stock loan refinances unsold completed dwellings after a property development reaches practical completion.

• It replaces the construction facility so the developer avoids selling stock under pressure to meet the original loan maturity.

• Facilities typically sit at 60% to 70% LVR of the completed valuations, depending on the lender.

• Pricing is usually 8% to 12% per annum through non-bank and private lenders, plus establishment and legal fees.

• Approval depends on stock quality, remaining sales evidence, exit strategy, and location across Australia.

What is a residual stock loan?

A residual stock loan is a form of development exit finance secured by a first mortgage over the unsold completed dwellings in a project. The construction lender is paid out, and the developer moves onto a facility priced for holding completed stock, not for building it.

Construction loans are structured around a build program and a set sunset date. When a project reaches practical completion and a portion of the stock has not settled, the construction lender expects to be repaid. If the developer cannot pay it out from sales, they need to refinance. That is where a residual stock loan sits.

The loan is typically documented as a business-purpose facility because the borrower is a property development entity, not a consumer. NCCP obligations may apply where a natural person is the borrower, and independent legal, financial, and tax advice should always be sought.

How residual stock finance works

The lender takes a first mortgage over the completed titled stock. Each dwelling is usually on its own title after strata registration, so partial discharges are released as units settle. Interest is often capitalised for a portion of the term, which preserves cash flow while the developer works through sales.

A residual stock facility usually runs 12 to 24 months. Some lenders will consider 6-month terms for near-complete sell-downs, and others will extend to 36 months where the market is soft. The exit is almost always the sale of the remaining stock, occasionally a refinance to a longer-term investment loan if the developer decides to hold and lease.

Who a residual stock loan suits

A residual stock loan may suit developers whose construction facility is at or near maturity, projects that have reached practical completion but still hold 15% to 60% of unsold stock, developers who want to protect margins by avoiding discounts of 10% to 20% to force sales, and borrowers with clear evidence of sales momentum, a realistic exit strategy, and a stock mix that a valuer can support.

It is particularly useful when a project has hit a soft window in the market, when strata registration or title issues have delayed early settlements, or when a developer is transitioning from a completed project to the next site and needs the capital freed up. We see the deal type across Sydney, Melbourne, Brisbane, Perth, and the Gold Coast, wherever completed apartment and townhouse stock is common.

When a residual stock loan may not suit

The loan may not suit projects with weak or uncertain sales evidence, stock that a valuer will not support at the developer's expected pricing, borrowers without a clear exit within 12 to 24 months, or situations where the interest cost erodes the margin the developer is trying to protect.

If the remaining stock is likely to sell within 90 to 120 days, a shorter caveat loan or a first mortgage bridge may be cheaper. If the developer wants to hold the stock long term as rentals, a standard investment loan through a bank or non-bank lender may be more appropriate.

Typical loan structure, LVR, and pricing

• LVR against completed stock: 60% to 70%

• Loan term: 12 to 24 months

• Interest rate: 8% to 12% per annum

• Interest treatment: capitalised or serviced monthly

• Establishment fee: 1.0% to 2.5% of the loan amount

• Security: first mortgage over the residual titled stock

• Discharge basis: partial discharges as each unit settles

• Loan size: $1M to $50M is common in the private and non-bank space

These ranges are indicative only. Actual pricing, LVR, term, and fees depend on the lender, the location, the stock mix, the borrower's track record, and the exit strategy. Rates are subject to change and subject to lender assessment.

Worked example: eight unsold apartments in metro Sydney

A Sydney developer completes a 24-unit apartment project in the inner west. Sixteen units have settled at an average sale price of $1.15M each. Eight units remain, valued in one line at $8.6M.

The construction facility of $6.4M is due to mature in 60 days. The developer has active buyer interest on three units but expects the full sell-down to take another 10 to 14 months.

A residual stock lender approves a facility of $5.6M, which is around 65% LVR against the in-one-line value of $8.6M. The loan is priced at 9.75% per annum, capitalised for the first 12 months, with a 1.5% establishment fee and a 24-month term. Partial discharges of $700,000 to $750,000 apply as each unit settles.

This gives the developer time to sell at retail values rather than discounting to close the construction facility. The developer's projected margin is preserved by an estimated $600,000 to $900,000, less the additional interest and fees of the residual stock facility. Numbers are illustrative only and subject to valuation and lender approval. The same structure works for projects in Melbourne, Brisbane, and Perth where absorption timelines and comparable sales support the valuation.

How lenders assess residual stock deals

Lenders focus on the quality of the security and the credibility of the exit. Expect a full desktop and physical valuation on the residual stock, usually on an in-one-line and sometimes on a gross realisation basis. A lender will also review sales contracts, agent authorities, and evidence of enquiry.

Assessment typically covers the developer's track record on similar projects, the current absorption rate for comparable stock in the suburb, the mix of one, two, and three-bedroom apartments or townhouse types, the presence of any commercial or retail component, strata registration status, and any outstanding defects or occupation certificate issues.

Non-bank lenders and private lenders in Australia often move faster than the majors on this style of deal because they are set up to price and structure short-term property-backed lending, not long-term retail mortgages.

Security, valuation, and typical timeframe

Security is a first mortgage over the residual titled stock. Where strata is not yet registered, a lender may accept a mortgage over the parent title with a condition that strata is finalised within an agreed period.

Valuations are usually completed within 5 to 10 business days. Formal approval, documentation, and settlement can complete in 3 to 6 weeks from a clean application, subject to valuation, legal review, and lender assessment.

Risks to weigh up

Residual stock finance is powerful, but it is not free. The main risks are that pricing is higher than a standard bank mortgage, so the sell-down must justify the interest cost, that market conditions can shift within the loan term and reduce achievable sale prices, that a soft sales period may push the developer to seek a further extension, which is not guaranteed and usually attracts additional fees, and that capitalised interest reduces headroom against the LVR cap over time.

Borrowers should model the loan cost against the incremental sale price they expect to preserve, and stress test the model against a slower absorption rate.

Residual stock loan vs bridging loan vs first mortgage refinance

• Residual stock loan: 12 to 24 months, 60% to 70% LVR, 8% to 12% p.a., best for refinancing unsold completed development stock.

• Bridging loan: 3 to 12 months, 60% to 75% LVR, 8% to 14% p.a., best for an individual buyer or investor timing gap.

• Investment loan refinance: 15 to 30 years, 60% to 80% LVR, 6% to 8% p.a., best when the developer chooses to hold and lease.

If the intent is to hold long term, an investment loan is usually the cheapest option. If the timing gap is under 12 months, a bridging loan or short first mortgage can work. If the developer needs 12 to 24 months to sell without discounting, residual stock finance is usually the right tool. For deeper background on structured development lending, see our guide to property development loans.

How Innovate Funding helps

Innovate Funding works with private and non-bank lenders that fund residual stock and development exit facilities across Australia. We help developers structure the facility, package the valuation and sales evidence, and take the deal to lenders whose appetite matches the project type, location, and stock mix.

We do not lend directly. We help borrowers access private lending solutions that reflect the reality of a completed project rather than the constraints of a mainstream bank credit policy. Solutions are subject to valuation, legal review, and lender credit approval.

Frequently asked questions

What is a residual stock loan?

A residual stock loan is a short-term facility that refinances a developer's existing construction debt after practical completion, secured by a first mortgage over the unsold completed dwellings. It resets the term so the developer can sell the remaining stock in an orderly way.

What LVR can I get on residual stock finance?

Most lenders sit between 60% and 70% LVR against the in-one-line valuation of the unsold stock. A stronger track record, better location, or higher-quality stock can support the top of that range, subject to valuation and lender assessment.

How long does settlement take?

Settlement is usually 3 to 6 weeks from a clean application, depending on valuation turnaround, legal review, and lender assessment. Private lenders can sometimes move faster where the security is straightforward.

Can I get residual stock finance with pre-sales still to settle?

Yes. Many lenders will include unsettled but exchanged contracts in the loan structure, and price accordingly. The loan can be sized to pay out the construction facility and hold the balance of unsold stock at an agreed LVR.

Are residual stock loans regulated under NCCP?

Most residual stock loans are business-purpose facilities and fall outside NCCP because the borrower is a development entity. Where a natural person is a borrower, NCCP may apply. Independent legal advice is recommended for every deal.

What happens if I do not sell all the stock before the loan matures?

Options usually include an extension with the same lender, subject to fees and continued lender appetite, a refinance to another residual stock lender, or a refinance to a long-term investment loan if the developer chooses to hold and lease. A second mortgage behind a new first mortgage can also help bridge a small residual balance. None of these outcomes are guaranteed, so a realistic exit plan should be locked in before drawing the facility.

Key takeaways

• Residual stock loans refinance unsold completed dwellings so developers can sell without a fire sale.

• Facilities typically sit at 60% to 70% LVR against the in-one-line valuation and run 12 to 24 months.

• Pricing is usually 8% to 12% per annum, with capitalised interest a common feature.

• Approval hinges on stock quality, sales evidence, developer track record, and a credible exit strategy.

• Private and non-bank lenders often move faster and price more flexibly than major banks for this deal type.

• Costs must be modelled against the sale prices the loan helps preserve.

Ready to structure a residual stock facility?

If your construction facility is approaching maturity and stock remains, speak to Innovate Funding about a residual stock loan structured for your project. Every deal is subject to valuation and lender credit approval.