Formula
WhereNet realisation = GRV less selling costs and GST. TDC = total development cost.
Why it matters
Profit on cost is the sniff test. Most Australian developers will not seriously consider a build-to-sell apartment project below 18–20%, and most senior lenders will not fund one below that range either. Below the threshold, the deal does not compensate for the risk.
Worked example
Continuing the Waterloo scheme: net realisation = $26.2M (GRV $28.59M less ~$2.4M selling costs and GST), TDC = $24.1M.
Profit on cost = ($26,200,000 − $24,113,000) / $24,113,000 = 8.7%.
That is well below the typical hurdle. The scheme needs higher pricing, lower costs, or a different scheme size.
Notes
Typical hurdles
- Boutique build-to-sell apartments: 18–22% profit on cost.
- Larger projects with longer programs: 20–25% to compensate for risk.
- Joint-venture or capital-partner deals: thresholds depend on the structure, but 20% is a common floor.
Why profit on cost, not just margin
Profit on cost answers "did the dollars I tied up in this project earn a worthwhile return?" Margin answers "how much of every revenue dollar did I keep?" Both matter; profit on cost is the one that maps to capital efficiency.
Related terms
Connected ideas in the glossary.
- Development marginProfit divided by revenue rather than cost.
- Total development cost (TDC)Every dollar spent to deliver the project.
- Gross realisation value (GRV)Total revenue from selling every dwelling in the project.
- Equity IRRTime-weighted return on the equity invested.
- Residual land value (RLV)What you can pay for the land and still hit target return.
Questions
Frequently asked
What's a good profit on cost for an apartment development?
18–22% is the conventional minimum for a build-to-sell apartment project in Australia. Below that, most lenders and equity partners pass.
Profit on cost vs development margin, which one matters?
Both. Profit on cost tells you about capital efficiency; development margin tells you about pricing power. Most ICs want both above their hurdle.
Does profit on cost include GST?
By convention, the calculation uses net realisation (GRV less selling costs and GST) and TDC (all-in costs). GST is netted out before the ratio is calculated.
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