Development
How many units must be pre-sold before construction starts?
Pre-sales are not applause from the market. They are a test of whether the project has enough committed demand to carry construction risk.
Many residential projects describe pre-sales as a percentage target: 30%, 40%, 50%. That number is useful, but incomplete. A proper pre-sales requirement should explain why that threshold exists and what risk it is covering.
The number may come from a lender covenant, a cash-flow gap, a buyer-deposit requirement, or a confidence test before the developer signs a construction contract. The danger is treating all reservations as equal when only binding, funded, resilient sales should be allowed to support the start decision.
Direct answer
What is a pre-sales requirement?
A pre-sales requirement is the minimum value or number of binding unit sales a development needs before construction start or funding drawdown. It helps protect the project from weak demand, funding gaps, buyer cancellations, and premature construction commitments.
The four gates.
Lender condition
The minimum sales value or percentage of GDV required before the lender allows drawdown or construction start.
Funding gap
The cash shortfall after committed equity and debt are compared with the uses that must be covered at start.
Deposit quality
The buyer cash that remains after commissions, legal leakage, and expected cancellations.
Sales velocity
Whether the team can realistically achieve the required number of binding sales before the intended start date.
What the model should output.
- Required pre-sales as a percentage of GDV.
- Required number of binding unit sales.
- Net deposits collected after sales costs.
- Funding cover ratio after deposits.
- Monthly sales pace required before construction start.
Start discipline
A conditional start is still a risk decision.
If the calculator says a project needs 42% of GDV pre-sold but current velocity only gets to 28% before start, the answer is not automatically “cancel.” It may be revise phasing, reduce exposure, delay the main contract, improve pricing evidence, or negotiate a different funding condition.
Calculate the threshold