To obtain bank funding, developers are typically required to obtain ‘qualifying pre-sales’. Where the value of such presales is required to be at least 100% of the amount of lending being sought.
Sometimes it is difficult for developers to achieve 100% presale cover, whether due to a slow market or simply buyer reluctance to purchase off-plan. Other times, developers specifically choose not to presell properties as they expect to achieve a higher price by selling closer to the completion of the project than by selling off-plan.
In such circumstances, they may seek a ‘Pre-sale underwrite’ from ASAP Finance to still qualify for bank funding. A presale underwrite is an agreement whereby ASAP, as the underwriter, agrees to purchase a specified number of properties on completion of the development in lieu of an arm’s length purchaser in the event the property remains unsold on completion. This allows the bank to be repaid in full even if the property has not been sold. Underwrites are all about providing the bank with certainty that they will be repaid upon completion of the project.