Key takeaways
- Customer instalments work like equity during construction: they carry no interest and reduce debt drawdowns. But they are not revenue, and the obligation to deliver remains.
- In the sample project, changing the terms from 10/10/80 to 20/15/65 reduces Peak Funding from THB 1,119.2 m to THB 867.9 m.
- Payment terms affect Peak Equity more directly than simply accelerating early sales, provided sales at completion stay the same.
Where Presale sits in the capital structure
The sources of funds for a development project differ in cost and terms. The usual order of use is to draw on low-cost funds first, then add debt, and finish with a refinancing or exit.
| Order | Source of funds | Approximate cost | Key terms |
|---|---|---|---|
| 1 | Sponsor Equity | Expected return of 12–20%+ per year | Banks usually want to see this equity first |
| 2 | Presale Cash Flow | No interest, but there are selling costs | Depends on sales and payment discipline |
| 3 | Construction Loan | About 6–10% a year | Drawn according to progress; secured |
| 4 | Private Bond / Mezzanine | Higher than bank debt | Fills the gap that banks do not cover |
| 5 | Refinance / Fund / Trust Exit | Depends on the market | Used to repay debt or return capital |
The cost ranges are estimates for educational purposes. Actual costs depend on credit, collateral and market conditions.
Presale is not free money: Although it carries no interest, you must pay commission and marketing costs, you may have to discount prices, and in accounting terms advances received are not yet revenue. Under TFRS 15, revenue from selling condominium units is recognised when control passes to the buyer. Money received before that is a contract liability. If the project cannot be delivered, the obligation to refund falls back on the developer.
Peak Equity is the question the owner must answer
Peak Equity Need = Peak Funding − usable loan facility
Peak Funding is a project figure; Peak Equity is a shareholder figure. It is determined by three things: customer instalments, the bank facility and the timing of loan drawdowns. If instalments come in slowly or debt cannot be drawn in time, the whole difference must come from additional equity or new sources of funds.
Comparing three payment terms
Sample project: Total sales value THB 2,100 million; land THB 250 million; construction and soft costs THB 1,170 million; owner's equity THB 400 million; construction facility THB 450 million; interest 7% per year, drawable from month 0; 20% sold at construction start and 80% at completion; equity is used first, then debt is drawn.
| Item | Option A: 10/10/80 | Option B: 20/15/65 | Option C: 30/20/50, 2% discount |
|---|---|---|---|
| Booking deposit + contract deposit (% of price) | 10% | 20% | 30% |
| Instalments during construction | 10% | 15% | 20% |
| Payment at transfer | 80% | 65% | 50% |
| Total revenue (THB m) | 2,100.0 | 2,100.0 | 2,058.0 |
| Peak Funding before interest (THB m) | 1,119.2 | 867.9 | 668.0 |
| Maximum outstanding debt (THB m) | 450.0 | 450.0 | 274.8 |
| Funding gap above the facility (THB m) | 312.0 | 49.7 | 0.0 |
| Total equity required (equity + gap) | 712.0 | 449.7 | 400.0 |
| Total interest (THB m) | 46.9 | 35.6 | 17.5 |
| Net profit after tax (THB m) | 350.2 | 359.3 | 342.6 |
| Equity IRR (example) | 18.4% | 21.2% | 21.6% |
How to read this table
- A vs B: Receipts before transfer are 15% of the price lower, so Peak Funding is THB 251.3 m higher than under Option B and a further THB 262.3 m of equity must be found.
- B vs C: The 2% discount costs THB 42 m of revenue, but it closes the gap and cuts interest by THB 18.1 m. Net profit falls by THB 16.7 m, but Equity IRR improves slightly because money is returned sooner.
- Limitation: The figures assume customers accept Option C as readily as Option B. In reality, tougher terms may slow sales, which must be tested together with price and sales speed.
Early sales vs sales at completion
A common view is that Presale must be pushed hard before piling starts. In the sample project, if sales at month 0 are 10%, 20% or 40% but still end at 80% at completion, cumulative receipts to month 30 are the same at THB 588 m, and the gap barely changes (THB 49.7 m, 49.7 m and 47.1 m), because instalments are collected retroactively once buyers sign contracts.
What really changes the outcome is cumulative sales at completion and the payment terms. In the same example, when sales are 25% faster throughout, sales at completion reach 97.5% and the funding gap falls to zero.
Early sales still matter in other ways: they are evidence of market demand and are often a condition precedent to loan drawdown. But they should not be seen as the only answer to Peak Funding.
Tools for restructuring instalments
One format to use as a starting point compares standard terms with terms that accelerate cash inflows.
| Period | Standard | Accelerating cash inflows | Difference |
|---|---|---|---|
| Booking Fee | 1% | 2% | +1% |
| Contract Fee | 5% | 8% | +3% |
| Down payment during construction | 14% | 20% | +6% |
| Payment at transfer | 80% | 70% | −10% |
| Total | 100% | 100% | 0% |
- Early bird in exchange for a high down payment: Offer a discount only to buyers who pay a high proportion before transfer, because the money arrives sooner and the likelihood of cancellation falls.
- Multiple payment plans: Give buyers a choice, such as a low down payment with no discount versus a high down payment with a discount, to sort customers by financial capacity.
- Pre-launch for target customers: This brings momentum and earlier cash, but results must be measured against profit, not just the number of bookings.
Discounts are a real cost, so their effect on profit must be calculated. See also Hidden costs of Presale
How usable are customer instalments in practice
- Check whether the loan agreement requires customer money to be paid into the project account or imposes account control conditions.
- Separate money that can be used immediately from money that is set aside or whose drawdown is controlled.
- Check whether the bank counts booking deposits and down payments as equity. Criteria differ by bank.
- Set aside a reserve to cover cancellations and payment defaults.
- If you use an escrow account or another mechanism to protect buyers' money, check the current conditions and legal requirements with a legal adviser before building them into your plan.