Inventory Funding for Real Estate: How to Borrow Against Unsold Units
Inventory funding is a loan secured by a mortgage on unsold units in a completed or near-complete project. The developer repays through a sale escrow as units sell, usually at a fixed release price per unit. It suits RERA-registered projects at or near OC with unsold stock on which a clean charge can be created.
What problem does inventory funding solve?
When a project reaches completion, the construction loan is usually repaid or close to it, but capital can still be locked in units that have not sold. That capital earns nothing while overheads, interest on other debt and the next project's land and approvals all need cash. Inventory funding turns finished stock into liquidity without a fire sale.
How does inventory funding work?
- Identify the inventory. A list of unsold units with carpet area, floor, type and expected price.
- Value it. The lender, usually through an empanelled valuer, values the units.
- Size the loan. The loan is a fraction of the value, leaving a margin for price falls and selling costs.
- Create security. A mortgage on the unsold units, plus an escrow over their sale proceeds.
- Repay as units sell. Each sale triggers a payment to the lender, typically a fixed release price per unit, before the lender releases its charge so the buyer gets clean title.
The cycle in four words: unsold, selling, sold, repaid.
Who is eligible?
Most lenders look for:
| Requirement | Why it matters |
|---|---|
| OC received, or project near OC | Completed stock is easier to value and sell |
| RERA registration | Confirms regulatory standing and buyer protection framework |
| Unsold inventory of meaningful value | The security and the repayment source |
| A clean charge is possible | The lender needs a first or acceptable charge on the units |
Lenders also review past sales velocity in the project, price realisation against launch price, location demand and the developer's other liabilities.
What is a release price per unit and why does it matter?
The release price is the amount the lender requires from each unit's sale before it releases its charge on that unit. It is usually set above the loan amount allocated to that unit, so the loan is repaid before all units are sold.
Worked example
Illustrative numbers only.
- Unsold units: 50 apartments.
- Valuation: ₹1 crore per unit, ₹50 crore in total.
- Loan sanctioned: ₹25 crore, which is 50% of value.
- Loan per unit: ₹50 lakh.
- Release price agreed: ₹65 lakh per unit, which is 130% of the per-unit loan.
| Units sold | Paid to lender (at ₹65 lakh each) | Loan outstanding |
|---|---|---|
| 0 | ₹0 | ₹25.0 crore |
| 10 | ₹6.5 crore | ₹18.5 crore |
| 20 | ₹13.0 crore | ₹12.0 crore |
| 30 | ₹19.5 crore | ₹5.5 crore |
| 39 | ₹25.35 crore | Repaid (before interest) |
In this structure the loan is repaid by around the 39th unit, before interest, leaving the last 11 units entirely for the developer. Interest and any minimum repayment schedule change the exact numbers, but the principle holds: a higher release price means faster deleveraging and lower lender risk.
How do lenders value unsold inventory?
Lenders use a valuer's report and usually consider:
- Recent transaction prices in the same project.
- Comparable prices in the micro-market.
- Government guidance or ready reckoner value, as a floor reference.
- A distress or quick-sale value, to test the downside.
The loan is sized to a conservative value. If the valuation leans on aspirational list prices that the project has not achieved, expect a lower sanction.
When should you use inventory funding instead of construction finance?
| Situation | Better fit |
|---|---|
| Project under construction, sales live, needs money to build | Construction finance |
| Project complete or near OC, units unsold, construction loan repaid or close to it | Inventory funding |
| Construction loan still outstanding at OC and sales are slow | Inventory funding to refinance the residual construction debt, if the existing lender permits |
| Company overheads need funding across projects | Working capital |
What does RERA mean for inventory funding?
RERA's separate account rule continues to apply until the project is completed. Under the Maharashtra rules, for example, once a completion certificate is received for the project, the balance in the separate account can be withdrawn. After OC, sale proceeds are generally freer to route through the lender's escrow, which makes inventory funding easier to structure. Check your state's rules and your existing loan agreements before creating a new charge.
What are the risks and how do you manage them?
- Slow sales: agree a realistic tenure and a minimum repayment schedule you can meet even if sales slow.
- Price cuts: a release price that is too high can block discounted sales. Negotiate a mechanism for approved price reductions.
- Existing charges: the previous construction lender's charge must be satisfied or shared before a new lender can take security.
- Buyer experience: charge release must be quick at each sale, or buyers' home loans get delayed.
What should you prepare before applying?
- An unsold inventory schedule: unit numbers, sizes, floors, current price, and status.
- Sales history: units sold per month for the last 12 to 24 months, with cancellations.
- Collections data: amounts demanded, amounts received and amounts overdue from allottees.
- Project status: construction progress, cost to complete, approvals and expected OC date.
- RERA details: registration, latest quarterly updates and the designated account statement.
- Existing debt: any construction finance on the project and the lender's charge.
Worked example: sizing the line from sales velocity
Illustrative numbers only. A project has 80 unsold units at an average price of ₹1.25 crore, so ₹100 crore of unsold inventory. It has sold an average of 4 units a month over the last year.
| Item | Amount |
|---|---|
| Unsold inventory value | ₹100 crore |
| Months to sell at current velocity | 20 months |
| Assumed advance as a share of inventory value, for illustration | 40% |
| Indicative line | ₹40 crore |
| Repayment from sales at the release price | Each sale pays down the line |
If sales slow, the lender will look at the gap between remaining tenor and months to sell. Faster sales and realistic pricing support a larger line.
How MoneyKarma helps
MoneyKarma is a loan distribution platform, not a lender. We compare inventory funding structures, including loan size, release price and tenure, across 90+ lender partners and coordinate with the lender you choose. The lender makes the credit decision. See inventory funding, read real estate developer funding from land to OC, or share your requirement.