Mortgage Language Lessons - DCR

To presale or not presale?

DCR or Debt Coverage Ratio refers to the dollar value of pre-sold units of a property development that a lender will require in proportion to the total loan amount.

A simple example would be if a developer is building an apartment complex with 20 units and needs to borrow $5 million to fund the project. A lender may offer to fund the project conditional upon the developer achieving 80% DCR meaning that they would have to presell $4 million dollars worth of apartments.

Although the cash from these purchases won't be fully available until settlement (i.e. after the completion of the majority of the project), merely the signed contracts will provide the lender with assurance that the loan will be repaid.

In many cases, traditional lenders such as the big banks are requiring up to 100% DCR which quite frankly can be a pain in the bum for developers. As such, the spectrum of non-traditional or non-bank lenders continues to grow as issues such as DCR push borrowers away from the big banks into the waiting arms of more flexible financiers.

As always, Capstack are experts in property development and commercial property financing and whether you're an experienced investor or are looking to get into the market for the first time - we can help make it happen smoothly for you.

Check us out at www.capstack.com.au