For residential projects, the regulatory framework requires a significant share of customer collections to be held in a dedicated project account and used for construction and land costs. This changes the shape of cash available to service debt, and construction finance needs to be built around it, not around a generic amortisation schedule.
Start with the project, not the promoter
Lenders underwrite the project's sales, costs and approvals as well as the promoter's track record. A realistic sales plan, a cost-to-complete estimate and a clear approvals status are the foundations of a bankable proposal.
Match repayment to receipts
- Align principal repayments with expected collections rather than fixed monthly instalments.
- Provide for a debt service buffer in the early phases when collections lag costs.
- Test the plan against slower sales and delayed approvals, not just the base case.
Plan the funding stack
Promoter equity, customer advances, construction finance and, where appropriate, structured funding each play a role. The mix affects cost, control and flexibility, and should be decided together rather than piece by piece.
After completion
Once rentals begin on completed commercial assets, lease rental discounting can refinance construction debt on better terms against contracted rental streams. Planning for this from the outset avoids a refinancing scramble later.
Regulatory requirements vary and evolve, so confirm project-specific obligations with your legal counsel. The financing structure should be designed to work within them.
This article is for general information and is not financial, legal or tax advice. See our disclaimer.