Why don't property developers usually hold onto their finished projects? It boils down to finances and risk. Let's break it down: 2025-02-16

Imagine a developer building a new property project. They rarely have the cash to fund the entire project themselves. Instead, they rely heavily on loans, often secured against the land itself. Think of it like this: the bank essentially owns the land until the developer pays back the loan.

This is especially true with "progressive billing" projects. Developers sell units before construction is complete, but they still get paid at each stage of the building process. This shifts the risk to the buyer (and their bank, if they're taking out a mortgage). The developer gets a steady stream of income to carry out the construction.

So, why not just hold onto the completed units and wait for prices to rise? Because the developer has bills to pay! They have loan repayments (with interest!), contractors to pay, and suppliers to reimburse for materials. If sales are slow, they can get into serious trouble. The bank wants their money, and if the developer can't pay, they could foreclose on the land (and thus, the entire project).

It's a delicate balancing act as developers don't want to put all cash in one project, if it fails their wealth will be jeopardized, thus they will pledge the land for loan! Developers need to sell quickly to cover their loan. Dragging it out too long can lead to financial problems. Some banks even include clauses in their development loans that stipulate a certain sales pace. They don't want to get stuck with an uncompleted project either!

While developers know that holding onto properties could mean bigger profits down the line (especially as an area matures), they often can't afford to. By the way, another reason they can't hold on it to wait for price to go up because the owner of the land is the bank! They need redeemed the land and eventually distributed the strata title to the buyer!

There are exceptions, of course. Cash-rich developers can afford to hold onto properties. But these are usually the minority. One interesting strategy some developers use is land acquisition through a combination of cash and completed units. This reduces their upfront cash outlay and minimizes risk. It's a win-win: the landowner gets some immediate cash plus future property, and the developer conserves their funds. Again, the risk is transferred to the land seller, as in the worst case they will not get the house if the project fails.

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