How the NSW Pre-sale Finance Guarantee Works for Property Developers

A residential development can have planning approval, strong underlying demand and an experienced delivery team, yet still struggle to obtain construction finance.

The problem is often pre-sales.

Construction lenders commonly require developers to exchange contracts on a minimum number or value of dwellings before allowing the loan to be drawn. In a slower off-the-plan market, reaching that threshold can delay an otherwise viable project.

The NSW Government’s Pre-sale Finance Guarantee is designed to help close this gap.

What is the NSW Pre-sale Finance Guarantee?

The scheme allows the NSW Government to commit to purchasing selected dwellings off the plan in an eligible residential development.

This government commitment may be recognised by the project’s lender as satisfying part of its pre-sale requirement. If accepted, the developer can obtain construction funding and begin work sooner.

The scheme is supported by a $1 billion revolving fund and is expected to operate until September 2030.

It is important to understand that the Government does not provide the developer with a loan or pay an upfront deposit. Instead, it enters into a legally binding commitment to purchase nominated dwellings once they are completed and ready for occupation.

How does the scheme work?

For qualifying residential projects, the Government may commit to purchase:

• Up to 50% of the dwellings, capped at $50 million per project.
• Up to 75% of the dwellings in projects with fewer than 20 homes, capped at $30 million.
• Up to 100% of eligible affordable dwellings delivered or acquired by registered not-for-profit community housing providers, capped at $30 million per project.

Eligible projects must contain at least four homes.

The maximum government commitment value for each dwelling is generally $2 million. This increases to $2.5 million for homes with three or more bedrooms.

The Government obtains an independent valuation and usually commits at a discount of at least 10% to the dwelling’s assessed market value. The discount ensures the developer retains an incentive to sell the property privately before completion.

Developers remain free to sell the nominated dwellings to private buyers. As private sales occur, the government commitments can be renounced and the ongoing cost of the facility can reduce.

If a nominated dwelling remains unsold at completion, the Government purchases it at the agreed discounted price, provided the development has been completed in accordance with the scheme’s legal requirements.

Who is the scheme suitable for?

The Pre-sale Finance Guarantee is best suited to developers who have:

• A residential project located in NSW.
• Planning and development approvals in place.
• An indicative construction finance term sheet.
• A lender requiring further pre-sales before funding can be drawn.
• A credible developer, builder and professional delivery team.
• The ability to substantially commence construction within six months of signing the scheme documents.
• At least four homes within the development.
• Eligible dwellings that fall within the scheme’s value limits.

It may be particularly relevant for apartment, townhouse and regional housing projects where buyer demand exists, but off-the-plan sales are taking longer than the construction lender’s funding timetable allows.

It is less suited to early-stage projects without approvals or an indicative lender term sheet. It is also not intended to protect a developer from construction risk, guarantee development profits or replace the need for a properly structured construction facility.

What does the scheme cost?

Submitting an expression of interest is free.

Developers invited to make a formal application must pay an application fee. Approved applicants also pay an establishment fee and an ongoing line fee.

The line fee is currently assessed at between 1% and 1.5% per annum on the outstanding government commitment. Application and establishment fees vary according to the size of the commitment.

These costs need to be assessed against the potential benefit of commencing construction earlier, reducing holding costs and avoiding further delays.

What is the intention of the scheme?

The scheme is intended to turn approved housing projects into completed homes.

Rather than funding developments directly, the NSW Government uses its credit standing to give construction lenders greater confidence. This addresses the gap between planning approval and finance approval, which has become a major constraint on new housing supply.

The structure also keeps the primary development and construction risk with the developer. Government support is targeted at the pre-sale hurdle, not the entire project.

Developers considering the scheme should coordinate their application with their proposed lender. The government commitment only solves the funding problem if the construction lender is prepared to recognise it as part of the project’s pre-sale coverage.

Further information and expressions of interest are available through the NSW Government Pre-sale Finance Guarantee page.

Developer and institutional property finance

Flexdoc manages its developer and institutional property lending through 13x, our specialist finance brand for residential developers.

13x focuses on development exit and residual stock finance, including facilities for completed dwellings, expiring construction loans and stock awaiting settlement.

Visit 13x.com.au to learn more or submit a project for indicative terms.

This article provides general information only and does not constitute financial, legal or taxation advice. Scheme terms and eligibility may change.