Brokers unpick efficacy of new guarantee

The $1 billion Pre-sale Finance Guarantee was launched by the NSW government in September 2025 to accelerate the delivery of housing across the state by purchasing off-the-plan dwellings in residential developments to help developers secure lender approval for finance.

The first use of the scheme was announced on 21 January, through the $285 million Rozelle Village project in Sydney’s inner west.

The program was conceived in response to a growing number of residential projects with development approval that were unable to proceed to construction due to a shortfall in pre-sales required to satisfy lenders’ preconditions for funding.

Brokers working in development finance said they have seen pre-sale requirements stall or stop many projects.

Jean-Pierre Gortan, managing director of brokerage Simplicity Loans and Advisory, said that pre-sale requirements are “a significant barrier to bank funding for many developers.”

Gortan continued: “While the major banks have softened their positions slightly over recent years, pre-sales are still very much an APRA-driven construct and have not been removed altogether.

“In practice, developers are often required to achieve 50–70 per cent pre-sales by value, with strict criteria around purchaser type, contract terms and settlement risk. This is particularly challenging in the current market, where buyers are more cautious and finance approval timelines are longer.

“As a result, otherwise viable projects can struggle to progress purely due to the timing and rigidity of pre-sale requirements.”

Gortan viewed the impact as most pronounced in early-stage developments, mid-density apartment projects, and across Western Sydney and outer-metropolitan NSW, where margins are already tight.

“In these markets, pre-sale hurdles can delay or prevent projects from commencing, even where there is genuine underlying demand,” he said.

“Non-bank lenders have stepped in to fill this gap, offering reduced or no pre-sale funding options. While this has kept some projects moving, it comes at a higher cost of capital, which ultimately impacts feasibility and affordability.”

A solution at hand?

In September 2025, the NSW government launched its $1 billion Pre-sale Finance Guarantee scheme in an attempt to address these challenges.

The program enables the government to commit to purchasing up to 50 per cent of off-the-plan homes in approved developments, provided each home is valued at up to $2 million. Support ranges from $5–$50 million per project.

According to the NSW government, over $100 million worth of pre-sale commitment requests have been received and are currently under assessment.

A total of 31 expressions of interest have been submitted across NSW, with around a third invited to lodge full applications.

If approved, this support could facilitate more than 350 new homes across metropolitan Sydney and regional NSW.

The first announced development under the guarantee is the Rozelle Village project in Sydney’s inner west. The guarantee will support up to 32 affordable homes within the project’s 225 units if qualifying pre-sale requirements are not met before the project’s expected completion in 2028.

“The NSW Government’s Pre-Sale Finance Guarantee is well-intentioned and should help reduce funding costs by allowing eligible projects to access cheaper, bank-style capital where pre-sale requirements would otherwise be a constraint,” said Gortan.

He noted that the scheme is most likely to assist larger, well-located, institutional-grade developments in inner-city or premium markets, where end values are stronger, and projects are already close to being viable.

“In that sense, it improves funding efficiency rather than fundamentally changing project feasibility,” said Gortan.

“The drawback is that it is unlikely to bring a meaningful number of additional projects to market or materially address the housing shortage. In many cases, the guarantee will support projects that would likely proceed anyway, rather than unlocking developments that are currently unviable due to broader structural issues.”

While the guarantee would provide welcome support for developers and investors, Gortan said it would not materially improve housing pressures in NSW. He said that projects such as Rozelle Village would likely still proceed, albeit with higher-cost funding through non-bank lenders or after a longer and more difficult pre-sale campaign to satisfy bank requirements.

To truly boost housing supply, structural issues in the market would have to be addressed.

“The broader challenge is that the housing supply issue is not primarily a funding problem,” Gortan said.

“The key constraints sit elsewhere, including lengthy planning and approval processes, elevated construction costs, labour shortages, and recent legislative changes that have made the use of third-party construction companies more expensive and risk-heavy.

“In addition, feasibility remains a major issue in Western Sydney, where it is difficult to deliver apartments for less than approximately $400,000 per unit before on-costs, while achievable sale prices often sit between $550,000 and $660,000 (or around $8,000–$12,000 per square metre). In many cases, this gap means projects are simply not viable and therefore never get built.

“Until these structural issues are addressed, government guarantees – while helpful at the margin – are unlikely to materially increase housing supply or resolve the broader housing crisis.”

‘Shovels in the ground’

Some lenders and industry bodies have described the scheme as a step in the right direction.

After the launch of the guarantee, Cathryn Carver, a senior executive at NAB, said the initiative was “world leading”.

“This program is designed to restore confidence and certainty for lenders, home buyers and developers, helping projects move forward faster and boosting supply where it’s needed most,” she said.

“Increased housing stock improves affordability, alleviates pressure on the rental market and supports economic growth. Most importantly, it allows more Australians to get on the housing ladder as a pathway to their end home.”

The Property Council of Australia welcomed the news of the first guarantee-backed project. Anita Hugo, Property Council NSW executive director, said the deal showed that the guarantee can cut through one of the biggest blockers to apartment construction.

“Finance has been one of the biggest barriers holding back otherwise viable projects. Our research with Savills found that developers with approvals, demand and delivery partners still couldn’t get projects off the ground because pre-sale hurdles had become unworkable,” Hugo said.

“Getting the settings right on finance is just as important as getting the planning right. This guarantee is one of the clearest examples of government using its balance sheet to unlock private delivery.”

Brad Armitage, director of the Housing Industry Association NSW, also welcomed the program.

“It is good to see the NSW government taking action to address the chronic undersupply of housing in NSW,” Armitage said.

“After a development has received approval, finance is still required to begin construction – and that finance is often dependent on a certain level of off-the-plan sales. In a flat market, the Guarantee scheme will enable developers to access the funding needed to get shovels in the ground, while sales can continue during construction.”

According to Housing Industry Association data, multi-unit starts are projected to grow by 7.7 per cent to 28,540 in 2026 and are expected to continue increasing, breaking above 30,000 per year by 2027, in light of policy changes aimed at boosting apartment construction.

“We commend the NSW Government on the work that has been done to reform the planning system and get shovels in the ground faster,” Armitage added.

[Related: WA brokers warn of limitations of Help to Buy scheme]