Understanding In One Line Valuation and Its Impact on Leverage

Understanding In One Line Valuation and Its Impact on Leverage

When embarking on a 2 to 4-unit medium-density townhouse or infill development in Adelaide, many emerging developers face an unexpected equity shortfall during the construction finance stage. The root cause of this funding gap is rarely construction cost escalation alone; rather, it often stems from the specialised methodology deployed by bank panel valuers: the In One Line valuation (wholesale discount), as opposed to the anticipated Gross Realisation (the sum of individual “As If Complete” retail values).

In South Australia, statutory valuations—the Site Value, Capital Value and Annual Value assessed by the Valuer-General under the Valuation of Land Act 1971—serve rating and taxation functions, for example council rates, the Emergency Services Levy (based on capital value) and land tax (based on site value). In contrast, bank mortgage valuations follow Australian Property Institute (API) professional standards and lenders’ credit policies. When multiple dwellings are planned on an undivided parcel, the valuer may need to assess lender downside risk under a hypothetical mortgagee-in-possession scenario: if the developer defaults mid-project, what would a single third-party investor pay to purchase the entire development parcel in a single transaction?

Under this single-transaction disposal assumption, the valuer typically deducts a profit and risk allowance, prospective selling commissions, marketing costs, holding interest and, where relevant, GST. Consequently, a four-townhouse development with an aggregate retail end-value of $3,000,000 may see its In One Line valuation appraised at between $2,300,000 and $2,500,000 (these figures are purely illustrative; actual figures depend on site-specific assessment). Under applicable Loan to Value Ratio (LVR) restrictions, available debt capacity can fall noticeably, and the developer may need to contribute additional equity to reach financial close.

Circumstances That Can Trigger an In One Line Assessment

The following reflects common industry practice. Lenders’ valuation and credit policies are not uniform, so the requirements of the specific lender and its panel valuer apply. Whether a lender requires a wholesale discount valuation generally depends on the title structure, the number of dwellings and the level of pre-sales:

• Undivided Single Certificate of Title: If construction commences while all proposed dwellings remain on a single parent Torrens or Community title, individual dwellings cannot be conveyed independently in law. Lenders will typically ask the valuer to provide an In One Line valuation as one of the bases for lending.

• Residential vs Commercial Lending Thresholds: Lenders’ credit thresholds for projects of 2 to 4 dwellings on a single parcel are not consistent. Some lenders may consider a duplex (2 dwellings) under standard residential credit guidelines, but for projects of 3 or 4 dwellings, many lenders apply an approach closer to commercial or development finance and may require an In One Line valuation.

• Speculative Construction Without Pre-Sales: Where a developer proceeds on a purely speculative basis without qualifying third-party off-the-plan commitments, lenders are less likely to underwrite individual retail realisations because of liquidity exposure.

Strategic Pathways to Mitigate Wholesale Discounts

Developers in Adelaide are not without recourse. Through disciplined titling and pre-sale structuring during the feasibility phase, the impact of In One Line valuations can be managed or mitigated:

1. Advancing the Land Division Clearance and Titling Timeline

Wherever civil works and council approvals permit, developers can advance the land division clearance process under PlanSA. Securing the land division Certificate of Approval from the State Planning Commission, and satisfying the relevant council, SA Water and SA Power Networks requirements early, helps enable the Land Titles Office (the title registration authority under the Registrar-General, operated by Land Services SA) to issue separate Certificates of Title before the peak capital drawdown phases. When individual Torrens or Community titles exist on the register, valuers have stronger legal and market grounds to assess individual retail security.

2. Securing Qualifying Retail Pre-Sales

The core objective of the In One Line discount is hedging against inventory stagnation. By securing qualifying pre-sales, the developer provides tangible evidence of individual retail absorption. Lenders may then permit a blended valuation assessment, or evaluate the debt against verified contract values rather than a fully discounted wholesale pool. Common lender requirements for pre-sale contracts include: a genuine, arm’s length purchaser; an unconditional contract (without finance conditions or similar conditions precedent); expiry of the cooling-off period; and deposits paid into a trust account as agreed. Specific requirements vary between lenders.

3. Considering Staged Subdivision and Titling Structure

On larger infill sites where zoning and frontages permit, developers can consider creating standalone Torrens parcels through land division before commencing construction, and delivering the project in stages. In some cases this may allow the project to be assessed on a basis closer to standard residential lending. However, lenders generally assess the combined exposure of related borrowers, so simply allocating a project to different borrowing entities may not change how the lender assesses it. Multi-entity structures can also have land tax aggregation, stamp duty and holding-cost consequences. These should be modelled at the outset with finance, legal and tax advisers and a quantity surveyor.

Conclusion: Aligning Feasibility with Lending Mechanics

Accurate development feasibility requires more than aggregating prospective retail selling prices and applying a generic gearing ratio. Recognising the operational difference between In One Line wholesale assessments and gross individual realisations helps developers in South Australia structure their titling milestones, presale targets and equity buffers before committing capital to construction contracts.

Sources

• Property Valuations | Office of the Valuer-General

• Land use and capital value | RevenueSA (Emergency Services Levy is based on capital value)

• How land tax is assessed | RevenueSA (land tax is based on taxable site value)

Illustrative image only — not a photograph of a Cyberate PM project. Photo by RDNE Stock project on Pexels.