Chirayuthchai TraisaengsatheanStrategic Finance for Property Development
THEN

The 5-stage project development cycle and financial decision points

A map of the five stages of a property project: cash inflows and outflows, the J-curve, Peak Funding and financial decision points

5stages, each with a Go / No-Go gate
5–7 yearstypical duration of a condo project
~70%of cash comes in at ownership transfer
56%Peak Funding relative to cost, in the example
  • 5 stages, 5 questionsThe financial decisions in a condo-for-sale project fall into 5 stages, each with its own Go / No-Go gate.
  • Control Peak Funding, not just IRRCash goes out first, and the large inflow arrives at transfer. The figure to control throughout is the maximum funding that has to be raised.
  • Overlapping stagesSeveral stages run in parallel, so durations are given as ranges and cannot simply be added together.

01 · Fundamentals

Why divide a project into stages

A project can be profitable on paper yet short of liquidity. Monthly P&L does not show a project's health. What does is cumulative cash flow, Peak Funding and returns over the life of the project. Dividing the project into stages shows when the next sum of money will be committed and which conditions must be met first.

Heavy capital requirementCapital-intensive

Land and construction costs must be paid before any revenue arrives, so the capital structure has to be set up from day one.

Lengthy cycleLong cycle

From buying the land to closing the project takes several years. Interest rates, costs and the market can all change along the way.

Cash flow arrives in lumpsLumpy cash flow

Most revenue comes in when customers take ownership transfer, by which time most costs have already been paid.

02 · Overview

The 5-stage map of a project

Each stage is organised around the financial question that must be answered before committing the next sum of money. Click a stage name to read the details.

  1. 1

    Land & Feasibility

    6–24 months (land work 1–6 months)

    Should we buy this land, and can it actually be built?

    Main tasks
    Land due diligence, zoning, feasibility, design, EIA and permits
    Cash
    Land cost, deposit, consultant fees, equity

    Land Go/No-Go · EIA · permits

  2. 2

    Funding & Presale

    6–12 months, in parallel with Stage 1

    Are there enough funds and buyers to start construction?

    Main tasks
    Loan facility, capital structure, sales launch, contractor tender
    Cash
    Booking and contract deposits start to come in; marketing costs

    Funding Close · Presale · NTP

  3. 3

    Construction

    18–36 months

    Will it finish within budget and on time, with enough cash to reach transfer day?

    Main tasks
    Control remaining cost, draw the loan against progress payments, collect down payments
    Cash
    Largest cash outflow; down payments come in gradually

    Topping-out · Cost to Complete

  4. 4

    Transfer & Closing

    6–12 months

    Can sales be fully converted into cash and revenue?

    Main tasks
    Register the condominium, ownership transfer, repay debt, recognise revenue
    Cash
    Large transfer proceeds come in; project debt repaid

    Ownership transfer · revenue recognition

  5. 5

    Exit & Hold

    6–24 months; holding may extend to 60 months

    How to take the money back, and whether to keep the company

    Main tasks
    Sell unsold units, close the accounts, tax, return equity to shareholders
    Cash
    Remaining cash, corporate income tax (CIT), dividends

    Hold or Liquidate

How the stages overlap (example: 72-month project)

1Land & Feasibility
LandDesign, EIA, permits
2Funding & Presale
Funding and Presale
3Construction
Construction 36 months
4Transfer & Closing
Transfer
5Exit & Hold
ExitContinued holding
012243648607284

Unit: months · Funding and Presale work starts before all permits have been issued. Actual durations depend on the status of the land, the EIA and the size of the project. The whole project typically takes 5–7 years.

The land stage takes 1–6 months. If the title is clean, zoning is clear and the owner is ready to sell, it may finish in 1–3 months. If there are encumbrances, height restrictions or several rounds of negotiation, plan for 3–6 months. The EIA is the most volatile variable in Stage 1.

03 · Cash flow

Cash in and out at each stage

Approximate share of total outflows and total inflows over the life of the project. Stages 1 and 2 run in parallel, so they are shown together.

Outflows (% of total outflows)Inflows (% of total inflows)
  • Stages 1–2Land, permits, equity, Presale
    Outflows20%
    Inflows5%
  • Stage 3Construction
    Outflows65%
    Inflows25%
  • Stage 4Transfer & Closing
    Outflows10%
    Inflows70%
  • Stage 5Exit & Hold
    Outflows5%
    Inflows0%

04 · Worked example

J-curve and Peak Funding

The J-curve is the cumulative cash flow over the life of the project. It starts negative because there are only outflows, falls to its lowest point, which is Peak Funding, and then turns positive as transfer proceeds come in. This example is a 247-unit condominium with sales value of THB 2,800 m and cost of THB 2,100 m.

Peak FundingTHB 1,176 m56% of total cost · month 53
Cash collected before transferTHB 672 m24% of receipts
Cash break-even~month 65about 1 year after transfers begin
Profit before income taxTHB 700 m25% of receipts

Cumulative cash flow (THB million)

Background bands show Stages 1–5 · horizontal axis in months

J-curve: cumulative cash flow of the example projectCumulative cash flow is negative from the land purchase, bottoms out at minus THB 1,176 million in month 53, before transfers begin, then turns positive around month 65 and ends at plus THB 700 million in month 72. 12345+600+3000−300−600−900−1,2000122436486072 Peak Funding −THB 1,176 mMonth 53, before transfers begin Break-even ~month 65 +THB 700 m Peak construction period Booking deposits and down payments slow the decline
View figures by point
End of monthCumulative (THB m)Event
6-440Land purchase complete
12-460Booking deposits start
18-400Booking deposits come in before construction starts
24-355Down payments start to come in; construction work still light
36-728Peak construction period
48-1,077Down payments fully collected
53-1,176Peak Funding before transfers begin
60-486Transfers under way
66+107Turns positive
72+700Project closed; profit before corporate income tax
CostTHB mProportionMonth
Land42020%1–6
Construction1,15555%18–54
Soft Cost21010%1–72
Financing Cost1688%6–72
Taxes and fees1477%54–72
Total cost2,100100%
ReceiptsTHB mProportionMonth
Booking and contract deposits1686%12–24
Down payments50418%18–48
Transfer payments2,12876%54–72
Total receipts2,800100%

Spread monthly, with construction cost following an S-curve and other items spread evenly. All figures are illustrative examples for educational purposes.

Sensitivity test: Peak Funding of 56% of cost is below the 60–75% rule of thumb because 24% of receipts are collected before transfer. If pre-transfer cash falls to 15% (moving THB 252 m to be received at transfer), Peak Funding rises to about THB 1,428 m, or 68% of cost. You can test this on your own project using the calculators

ReturnIRR · NPV

Is it worth investing in?

Debt service capacityDSCR · LTC · LTV

Will lenders accept it?

LiquidityPeak Funding · Cash Balance

Is there enough cash to last until transfer day?

If IRR is high but Peak Funding exceeds what can be raised, the project cannot proceed. The model used for decisions must therefore always show all three perspectives together.

5 ways to reduce Peak Funding

  1. Presale-firstAccelerate sales before construction starts, which reduces external funding and allows better loan terms to be negotiated.
  2. Phased developmentUse cash from the first phase to fund the next, in exchange for a longer timeline.
  3. Payment schedule designCollecting down payment instalments earlier reduces the peak directly, but this must be balanced against customer acceptance and cancellation risk.
  4. Supplier and counterparty creditCredit terms from material suppliers, contractor retention and performance bonds in place of cash.
  5. Capital structureMezzanine debt, preferred equity or a JV reduce the equity burden, at the cost of higher financing cost and complexity.

05 · Decision gates

Decision points across the 5 stages

Before passing each gate, review the figures from all three perspectives again. If the gate is not passed, the options are to adjust the plan, delay, or stop before committing the next sum of money.

  1. Stage 1 Land & Feasibility

    Should we buy this land, and can it actually be built?

    Gates to pass

    • Go/No-Go on land purchase
    • EIA approved
    • Building permit

  2. Stage 2 Funding & Presale

    Are there enough funds and buyers to start construction?

    Gates to pass

    • Funding Close
    • Presale Launch
    • Notice to Proceed (NTP)

  3. Stage 3 Construction

    Will it finish within budget and on time, with enough cash to reach transfer day?

    Gates to pass

    • Topping-out
    • Remaining cost vs budget
    • Sales vs plan

  4. Stage 4 Transfer & Closing

    Can sales be fully converted into cash and revenue?

    Gates to pass

    • Condominium registration
    • Ownership transfer
    • Recognise revenue

  5. Stage 5 Exit & Hold

    How to take the money back, and whether to keep the company

    Gates to pass

    • Final financial statements
    • Actual IRR vs plan
    • Hold or Liquidate

The Presale and Covenant thresholds in this set apply where a lender specifies them. If funding comes from bonds, a JV or mezzanine debt, the conditions come from the contract with that source of funds.