In some markets for some types of properties, especially in the luxury bracket, you will only get the highest price for a new property that the buyer can touch and feel. Your best strategy may be to hold back as much product as possible until construction is complete and you have fully staged each home (staging means you hire furniture and fit-out the home to how it is intended to be lived in). Speculative homes are called as such because by selling only when complete you are betting on a rising sales market during the construction period to maximise profitability.
Waiting until construction is complete to sell is a luxury most house and land developers do not end up with or want in the first place. For the majority you want to be sold and done by the end of construction so you can take your profit and move your resources on to the next project. Beyond the speculators, reasons why developers still have unsold product at the completion of construction include:
- The construction loan and other costs are repaid and the developer is under no stress to sell the last few remaining units. On a 20 unit subdivision the first 16–18 units are likely required to cover all your costs, so this only leaves a few to sell anyway. If the market is rising why not wait for maximum price?
- You have the capital to hold the remaining properties yourself as rental investments.
- You have not achieved high enough sales prices to generate sufficient profit and therefore are under stress to wait for higher prices. You have arranged an extension of finance to enable you to do this. The race is on to sell before your finance costs further decrease your profit.
- Purchasers are defaulting on settlement, in which case you are forced to resell units — and probably at lower prices than you originally did.
Therefore ‘when are you going to sell?’ involves deciding and managing how much of your product you sell before you start construction, how much during construction and how much you want to leave, if any, until construction is complete. It’s a juggling act and achieving maximum profit is contingent on the market at each stage and the constraints imposed by your funders.
Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com
