A feasibility prepared in a stronger market may now be working with softer end values, longer sell-down periods and a higher cost of debt. Each movement can look manageable on its own. Together they can materially reduce development margin, increase peak debt and change the funding required to reach repayment.
The useful question for a developer is not simply where prices go next. It is whether the project still works if the market does not recover within the programme. This article looks at what a softer market changes in the feasibility, how a lender may reassess an existing development and construction loan, and the practical options where a project is already underway.
Are Property Values in New Zealand Falling?
As at August 2026, QV’s House Price Index recorded a 1.9% national decline over the preceding three months, taking the average value to $894,977. That was the largest quarterly decline in two years and left the national average 1.3% below a year earlier. Auckland was down 2.7% over the quarter and Wellington City 3.5%, although regional movements varied.
Stats NZ recorded 41,268 new dwellings consented in the year ended August 2026, up 21% on the previous year and the third consecutive month above 40,000. The monthly series is less settled, with seasonally adjusted consents rising 5.6% in August after falls of 4.5% in July and 3.7% in June. That pattern is why monthly consent data should be read with care. Stats NZ notes that the number consented each month can vary significantly because of the timing of large multi-unit projects such as townhouses and apartment buildings. Individual months are also revised, and a consent does not necessarily translate into a construction start or a completed dwelling. Lenders will generally weight the project’s own feasibility, presales or market evidence, programme and delivery position ahead of the headline consent number.
What a Declining Market Changes in a Feasibility
A softer market can affect several feasibility inputs at once. The two most visible are gross realisation and the time required to achieve the exit.
Recently settled sales may no longer support the original price assumptions, reducing gross realisation. At the same time, buyers may take longer to commit and settle, extending holding costs and capitalised interest. A sales campaign modelled over three months but completed over six months therefore affects both revenue and finance cost.
Many contingency allowances are designed mainly for build-cost movements. A project can remain on construction budget and still use its buffer through additional interest, rates, insurance, marketing and other holding costs. Conservative end values and realistic sell-down periods help protect against this, but the assumptions still need to be evidence-based. Our guide to property development risks explains how these variables should be tested before commitment.
Extending a facility may solve a timing problem, but it does not by itself solve a value or margin problem. The additional interest and any extension costs must be reflected in an updated feasibility and repayment plan.
Why Falling Values and Rising Costs Now Compound
During much of 2024 and 2025, falling borrowing costs could partly offset a slower sell-down. By September 2026, that relationship had changed, with the OCR rising as residential values softened.
The Reserve Bank increased the Official Cash Rate to 2.75% on 2 September 2026, its second consecutive increase. Annual CPI inflation was 4.1% in the June 2026 quarter, although the Reserve Bank noted that the rise was driven largely by fuel and that most core inflation measures remained within the 1% to 3% target range. It said the OCR may need to increase further if the central outlook persists, but the future path is not predetermined. For a developer, the practical implication is to test funding costs above the base case rather than assume the recent rate path will continue.
The following example is illustrative only and is not a development feasibility. Assume a townhouse project with base development cost of $4 million, gross realisation of $5 million and a $1 million margin. The downside scenario assumes end values are 4% lower and that peak debt of $2.8 million is carried for an additional four months at an indicative 9% per annum. Holding full peak debt across the whole period is deliberately conservative. The calculation excludes compounding, extension fees and other holding costs.
| Sells on programme | 4% softer, four months late | |
|---|---|---|
| Gross realisation | $5,000,000 | $4,800,000 |
| Base development cost (before delay interest) | $4,000,000 | $4,000,000 |
| Additional capitalised interest | $84,000 | |
| Margin | $1,000,000 | $716,000 |
Extension fees, additional marketing costs, rates, insurance and any further construction or settlement costs are excluded and would reduce margin further.
On these assumptions, a 4% reduction in value and four-month delay reduce the margin by $284,000, or 28.4%. The example shows why apparently modest movements need to be tested together rather than in isolation.
How Lenders Reassess a Project Mid-Cycle
A valuation obtained at approval reflects the evidence available at that time. Loan-to-cost compares debt with updated total project cost, so it can worsen if costs increase. Loan-to-value compares debt with the lender’s supportable current or completed value, so it can worsen if values soften. A facility may therefore remain on programme operationally while its leverage position changes.
Lenders do not generally revalue a project every time an index moves. Reassessment is more likely when there is an extension request, cost overrun, programme change, weaker sales evidence or another event affecting repayment. The review will usually cover updated cost-to-complete, remaining borrower equity, undrawn facility, current LVR and LTC, sales or refinance evidence, and whether the exit remains achievable. Our overview of development finance key concepts sets out the wider metrics.
If Your Project Is Already Underway
1. Test the exit against current evidence
Refresh the exit using recent settled sales, current competing stock, buyer feedback and realistic sell-down timeframes. Listings alone are not evidence of achieved value, but older comparables should not be discarded automatically if they remain relevant after adjustment.
2. Decide between holding and selling on the numbers
Holding completed stock carries interest and other holding costs. Where equity in finished stock is needed for the next site, bridging loans may provide short-term liquidity, but only where the security, term and defined repayment event support the facility.
3. Treat an extension as a decision, not a default
Confirm potential extension requirements, information needs, pricing and conditions well before maturity. An extension is a fresh credit decision and should not be assumed.
Waiting for the market to recover is not, by itself, a credible lender exit. Any hold strategy needs an evidenced repayment event, sufficient facility headroom and the borrower capacity to carry the asset for the proposed period.
Where a Softer Market Can Work in a Developer’s Favour
A softer market can improve acquisition terms in some transactions. Vendors may accept a lower price, longer due diligence or conditions that were unavailable in a stronger market. The benefit is project-specific rather than automatic, and a lower price only helps if the acquisition assumptions remain sound after allowing for risk, timing and the likely exit.
The same market conditions that support a lower entry price can also affect the eventual exit. The proposed development and sell-down period varies by project, so acquisition value, programme, finance cost and exit assumptions should be tested as one integrated feasibility rather than separately.
Structuring Development Finance in a Softer Market with ASAP Finance
A declining market does not make every project unfundable. It narrows the margin for error and increases the importance of current sales evidence, realistic timing, cost-to-complete control, contingency and a credible exit.
At ASAP Finance, we assess each project on its current feasibility, equity position, cost-to-complete, delivery risk and repayment strategy rather than relying on a headline market index alone. If you are planning a project or reassessing one already underway, get in touch with the team at ASAP Finance to discuss the updated funding position.