Pre-sales

Pre-sales are contracts of sale entered into with buyers before or during construction, giving a lender evidence that a project's completed stock has real buyers rather than relying solely on a valuer's projection of demand. A strong pre-sale position materially widens the panel of lenders willing to fund a project and generally improves pricing and loan-to-cost ratios, since part of the eventual repayment is effectively contracted in advance. Banks typically want a meaningful proportion of stock pre-sold, often to buyers who have exchanged with a deposit and satisfied finance conditions, before committing to a construction facility. Private lenders and specialist funds are generally more comfortable funding projects with limited or no pre-sales, assessing the feasibility and the developer's track record directly, though this typically comes with a lower loan-to-cost ratio and a higher cost of funds than a well pre-sold equivalent.

Related

Construction finance · GRV · Residual stock