Quick answer
A residual stock loan beats a discount sale when the total cost of holding the stock until it sells at full price (loan costs, land tax, levies, insurance and marketing) is smaller than the discount you would otherwise give away. A discount sale wins when the market is falling, the product is hard to sell, or holding costs would swallow the price difference. Work out the break-even discount per unit before deciding.
Key points
- Compare total holding cost to exit against the total discount, not one month against another
- A price cut costs less than it looks: GST falls by one-eleventh of the discount on a taxable or margin scheme sale
- Land tax snapshot dates can add a bill if stock is carried past them
- A mixed approach — discount one or two units, hold the rest — is often the best answer
- The loan only makes sense if the stock is genuinely saleable at the price you're holding out for
Every developer with unsold stock and a construction facility running out of time faces the same fork in the road. Take the hit now and sell the last units cheaply to beat the deadline, or refinance the stock with a short-term private loan and sell at the price the product deserves.
Both paths cost money. The question is which one costs less, and most developers answer it on instinct rather than arithmetic. This guide sets out the arithmetic. If you want the mechanics of the loan itself — how release amounts work and what the lender looks for — read our page on residual stock loans first. Here we focus purely on the decision.
What are you actually comparing?
Two cash outcomes, measured at the same finish line: the day the last unit settles.
Path A — discount and sell now. You cut prices enough to sell or exchange quickly, the construction lender is repaid from settlements, and the project is wound up. Your cost is the discount, multiplied across every unit you cut.
Path B — refinance and hold. A private lender repays the construction facility, you keep the stock on the market at your target price, and each settlement repays part of the new loan. Your cost is everything you spend carrying the stock until it sells.
The mistake is comparing the discount on one unit with one month of holding costs. The fair comparison is the total discount across all discounted units against the total holding cost to the final settlement.
| Cost item | Path A: discount now | Path B: refinance and hold |
|---|---|---|
| Price reduction | Yes — the main cost | None, if the target price holds |
| Loan costs to exit (interest, assessment fee, legals) | Existing facility only, briefly | Yes, for the whole holding period |
| Land tax | Usually avoided if sales settle before the next snapshot date | Possible if stock is held over a snapshot date |
| Strata levies, insurance, utilities | Short | For the whole holding period |
| Marketing and agent fees | Lower campaign spend | Longer campaign spend |
| Risk | Locked in — certain but final | Market could move either way |
How do you work out your break-even discount?
The break-even discount is the price cut at which both paths leave you with the same money. Below it, discounting is cheaper; above it, holding is cheaper.
- Estimate a realistic selling period for the remaining stock at your target price. Use agent feedback and recent comparable sales, not hope.
- Total the holding costs over that period. Loan costs to exit (your Letter of Offer sets these out), plus levies, insurance, land tax exposure and marketing.
- Divide by the number of units being held. That is your holding cost per unit.
- Adjust the discount for GST. On a taxable sale, GST is one-eleventh of the price; under the margin scheme the ATO says GST is one-eleventh of the margin. Either way, a lower price means lower GST, so the after-GST cost of a discount is ten-elevenths of the headline figure (subject to your accountant’s confirmation of how your sale is treated).
- Compare. If the after-GST discount per unit is bigger than the holding cost per unit, holding usually wins.
Interest on a private loan can be prepaid or capitalised, so there may be no monthly repayments while you hold. That doesn’t remove the cost — it moves it to the settlement statements — but it means your cash flow isn’t drained while you wait. Our explainer on prepaid or capitalised interest shows how each option lands at exit.
Illustrative example: three townhouses, two choices
Illustrative: A Brisbane developer has three completed townhouses left from a project of ten. The agent’s honest advice: list at $880k each and expect all three to settle within about nine months, or price at $820k each and have them exchanged within weeks. The construction facility expires in a month.
Path A — discount. Cutting $60k from each of three units is a $180k headline discount. Because the sales are taxable, GST on each falls by one-eleventh of the cut, so the after-GST cost is roughly $163,600.
Path B — hold. The developer refinances the three titles with a private first mortgage, interest capitalised. For the purpose of the comparison, assume the total loan cost to exit — interest, assessment fee and legal costs as shown on the Letter of Offer — is $75k. Add $15k for levies, insurance and a longer marketing campaign. If the townhouses are held over the 30 June land tax snapshot date that applies in Queensland, add an estimate of $10k. Total holding cost: about $100k.
On these figures, holding keeps roughly $63,600 more in the developer’s pocket. But if the agent were wrong and the stock took eighteen months, the holding cost would roughly double and the gap would close. That’s why the realistic selling period is the number to stress-test hardest.
Does GST or renting the stock change the answer?
GST affects both paths, so check how it lands on your cash before you set prices.
- Withholding at settlement. For new residential premises, the ATO says the buyer generally pays the GST withholding amount straight to the ATO at settlement — one-eleventh of the contract price for a taxable sale, or a smaller set proportion under the margin scheme — and the balance to you. The cash that reaches you (and the lender) on settlement day is less than the contract price.
- Your notice obligation. The seller must give the buyer written notice before settlement, whether or not withholding applies.
- Renting while you wait. Tenants help with holding costs, but the ATO notes that residential rent is input taxed, and a property rented for less than five years can still be new residential premises. Leasing new stock can therefore change your GST position. Speak to your accountant before signing a lease.
For the full picture of how the margin scheme works on a small project, see our guide to GST and the margin scheme for small developers.
How do land tax dates tip the decision?
Land tax is assessed on what you own at a single moment each year, so the calendar matters. Revenue NSW, for example, says liability is based on land owned at midnight on 31 December and the tax applies for the whole following year without being pro-rated. Queensland, Western Australia and South Australia use midnight on 30 June instead.
If your realistic selling period crosses a snapshot date, a holding strategy may pick up a full year’s land tax on the stock still owned at that moment. If a short discount campaign would get every unit settled before the date, that saving belongs in the Path A column. Our land tax guide for developers sets out the dates and thresholds state by state.
When does a discount sale win?
Holding isn’t always the smart move. A quick sale tends to be the better call when:
- prices in your pocket of the market are falling, so waiting means chasing the market down
- a neighbouring project is releasing similar stock, adding competition you can’t control
- the remaining units are the weakest in the project (worst aspect, no parking, on a busy road)
- your selling period estimate keeps getting longer every time you ask the agent
- you need your equity and attention for a new site more than you need the extra margin
A lender looks at the same signals. A private lender will be cautious about funding stock that only sells at a price the market has stopped paying, because the sales are the exit.
When does holding with a residual stock loan win?
- the stock is good product in a market with steady demand, and the discount needed for a fast sale is out of proportion to it
- the construction lender’s deadline, not the market, is the only reason you’d discount
- agent feedback and comparable sales support your target price
- the realistic selling period is short enough that holding costs stay well below the discount
- you can release surplus equity to keep the next project moving, such as a site deposit, while the stock sells
Is there a middle path?
Often, yes. Many developers do both: discount the one or two weakest units to sell them immediately and reduce the debt, and hold the better stock for full price. That shrinks the loan needed, shortens the holding period and leaves a cleaner exit.
Another option is a bulk offer to an investor for several units at once. It’s a discount by another name, so run it through the same break-even test. Whatever mix you choose, set the loan term with a buffer beyond your expected final settlement — our guide to the exit strategy for a short-term mortgage explains why the buffer matters.
If you’d like to test your numbers against a real offer, ask a specialist to look at your remaining stock.
Key terms at a glance
- Residual stock: completed, individually titled dwellings still unsold when a project ends.
- Break-even discount: the price cut at which discounting and holding leave you with the same money.
- Holding cost: every cost of carrying stock until it sells — loan costs, levies, insurance, land tax, marketing.
- Release amount: the agreed sum paid to the lender from each settlement to free that title from the mortgage.
- Snapshot date: the moment each year when a state assesses which land you own for land tax.
Find out what holding your stock would really cost
Before you sign a discount you can’t take back, get a firm view of the alternative. There’s no credit check when you enquire, and your details go to one direct lender — our lending partner fundU — rather than being passed around a panel. A specialist who understands completed stock reads it and replies.
Be precise about the stock: the addresses, the agent’s realistic prices, the construction lender’s payout figure and expiry date, and anything else secured on the titles. Accurate details are how you get an answer you can put straight into your break-even sum. Start your residual stock enquiry and make the decision on numbers, not deadline pressure.
Frequently asked questions
How do I work out whether to hold or discount my remaining units?
Add up everything it will cost to carry the stock until it sells at your target price: loan costs to exit, land tax, strata levies, insurance, marketing and agent fees. Then compare that total with the combined discount you would need to sell quickly. Whichever is smaller usually wins, provided your target price is realistic.
Does a discount reduce the GST I pay on new residential stock?
Generally yes. GST is one-eleventh of the price on a taxable sale and one-eleventh of the margin when the margin scheme applies, so cutting the price also cuts the GST. Your accountant should confirm the treatment for your project before you set prices.
Can a residual stock loan also release cash for my next project?
It can, where the stock has enough equity beyond what is needed to pay out the construction lender. Any extra amount must have a business purpose and must still be covered by the sales that form the exit.
When is discounting the better choice?
When prices in your area are falling, when similar stock is flooding the market, when the product doesn't suit local buyers, or when the holding period would run long enough that its costs exceed the discount. A lender will be wary of funding stock that only sells at a price the market has stopped paying.
Will I have to pay for a report on every unit before a residual stock loan settles?
No. There is no formal valuation required. The lender assesses the stock itself, looking at the product, its location and comparable sales, which saves you the cost and the wait of commissioning reports on each title.