Unlocking the Power of Residual Stock Loans: Rates, Margins, and Why Developers Love Them

Residual stock loans are quickly becoming a staple in the toolkit of Australia’s growing property developers. For those with completed projects and unsold stock, these loans offer a strategic way to unlock capital and maintain momentum.

They don’t just bridge the gap between construction and sales—they give developers breathing room to focus on long-term profitability. Here’s a closer look at how these loans work, how they track the Reserve Bank of Australia’s (RBA) cash rate, and why they’re so popular among savvy developers.

Market Pricing of Residual Stock Loan Rates

Today’s interest rates for residual stock loans typically range between 8.5% and 10%, depending on factors like loan-to-value ratio (LVR), property quality, and the borrower’s profile.

Compared to construction loans, these rates are more favourable because the properties involved are already completed, lowering the lender’s risk.

The cost of borrowing is closely tied to the RBA cash rate, which acts as a benchmark for most lending products.

Residual stock loans follow this trend, with lenders applying a margin over the cash rate to reflect market conditions and perceived risk. For instance, with the RBA cash rate at 4.35%, a typical lender might add a margin of 4% to 6%, resulting in a final rate of 8.35% to 10.35%. This means developers should keep an eye on RBA announcements, as any changes to the cash rate will directly impact their borrowing costs.

Why Are Residual Stock Loans Becoming Popular?

The growing popularity of residual stock loans can be traced to their flexibility and practicality. For many developers, completed but unsold units represent untapped potential. Traditional loans often tie up equity, leaving developers asset-rich but cash-poor.

Residual stock loans flip this dynamic, enabling developers to access funds locked in their completed projects. This liquidity can be used to finance new developments, cover operating costs, or simply provide breathing room to market unsold stock effectively.

Unlike construction loans, residual stock loans do not require pre-sales, giving developers the freedom to hold out for full market value instead of settling for quick, discounted sales. This advantage is particularly valuable in competitive or fluctuating markets, where timing plays a crucial role in maximising returns.

How Do Residual Stock Loans Function?

The mechanics of residual stock loans are relatively simple but strategically impactful. The developer approaches a lender with completed, unsold units as collateral. The lender assesses the property’s market value, typically approving up to 65% to 70% LVR. Loan terms are short, often between 12 and 36 months, to align with the sales cycle.

Most loans are structured as interest-only, minimising the immediate cash flow burden. Repayments are made progressively or in full as units sell, giving developers the flexibility to manage finances without disruption. This structure allows developers to focus on their next project while wrapping up sales from the previous one.

Developers Looking at Funding Options

For developers with ambitious goals, residual stock loans provide a competitive edge. They unlock capital, reduce financial pressure, and enable strategic decision-making.

But they aren’t a one-size-fits-all solution. Developers should assess their needs carefully, consider market conditions, and shop around for terms that align with their business strategy.

Why Esho Capital?

At Esho Capital, we specialise in working with growing developers to provide refined financing solutions that fit your vision. Our team understands the nuances of residual stock loans and is here to help you navigate your options with confidence. Whether you’re planning your next big project or looking for a way to optimise your current portfolio, we’re ready to support your journey.

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Get in touch today to explore how a residual stock loan can unlock new opportunities for your development business. Let’s build something extraordinary together.