Peak Funding: A Worked Example of the Most Cash a Development Needs

An illustrative cash-flow walk through land, design, construction and sales, showing where funding peaks and how debt and off-plan sales change it.

The question that stops most first developments is not whether the project is profitable, it is whether the owner can fund the deepest point of the cash flow. Profit arrives at the end; cost arrives throughout. This worked example stages an illustrative project month by month, finds the peak funding requirement, then shows what debt and off-plan sales do to it.

The situation

An overseas owner is planning a residential building in a Saudi city. The land costs SAR 3,200,000, pre-construction soft costs are estimated at SAR 640,000, construction is estimated at SAR 7,500,000 over 18 months, and total revenue is estimated at SAR 14,200,000 received after completion. The owner needs to know the maximum cash exposure at any single moment, not the total spend.

Assumptions (illustrative)

• Land price SAR 3,200,000, with Real Estate Transaction Tax a published headline rate of 5%.
• Acquisition legal, survey and ground investigation costs: SAR 90,000.
• Pre-construction soft costs to permit, months 1 to 8: SAR 640,000.
• Construction SAR 7,500,000 across months 9 to 26, drawn against progress.
• Revenue SAR 14,200,000, received from month 27 onwards unless sold off plan.
• Illustrative construction facility covering 60% of construction cost.

Step 1: Establish the day-one outflow

Land 3,200,000 plus transaction tax at 5% equals 160,000, giving 3,360,000. Add acquisition costs of 90,000 for a total of SAR 3,450,000 at month zero.

The first cheque is the largest single one and it is entirely equity, because land is rarely funded on the same terms as construction. Confirm the transaction tax treatment for your structure with ZATCA and your adviser, since it affects this figure directly.

Step 2: Add the pre-construction period

Soft costs of 640,000 spread across months 1 to 8 bring cumulative outflow to 3,450,000 plus 640,000 equals SAR 4,090,000 by month 8.

For eight months the project consumes cash and produces only paper: drawings, reports and an approval. This is the period owners underestimate, because nothing visible is happening while the second largest equity block is committed.

Step 3: Layer in the construction spend

Construction of 7,500,000 across months 9 to 26 brings cumulative outflow to 4,090,000 plus 7,500,000 equals SAR 11,590,000 by month 26.

Construction spend is not even: typically slower at the start, heaviest in the middle and tapering at the end. The shape matters for interest, but the cumulative total is what defines the peak.

Step 4: Find the peak with no revenue before completion

With all revenue arriving from month 27, the deepest point is SAR 11,590,000 at month 26, against total profit of 14,200,000 minus 11,590,000 equals SAR 2,610,000 before finance cost.

The owner must be able to place SAR 11.59 million to earn SAR 2.61 million, and the whole of that exposure sits at the moment the building is nearly finished and not yet sold. This is the number a funding plan has to answer.

Step 5: Introduce a construction facility

A facility covering 60% of construction provides 7,500,000 times 0.60 equals SAR 4,500,000. Peak equity becomes 11,590,000 minus 4,500,000 equals SAR 7,090,000.

Debt reduces the equity peak but adds interest and conditions, and lenders normally require the equity to be spent first. Facility terms, security and eligibility for a non-Saudi owner are matters for the bank and a licensed adviser, not assumptions for a model.

Step 6: Test off-plan sales with escrow

If 40% of revenue is sold off plan, that is 14,200,000 times 0.40 equals 5,680,000. If 70% of those proceeds are released against construction progress, that is 3,976,000, reducing peak equity to 7,090,000 minus 3,976,000 equals SAR 3,114,000.

Off-plan sales are the most powerful lever on peak funding, but the proceeds are not simply yours to spend. Off-plan selling in the Kingdom runs through the Wafi framework with project escrow arrangements, and the registration requirements and release mechanics must be confirmed with the responsible authority before you rely on them.

What changes the answer

• The proportion of revenue sold off plan and the rate at which escrow releases it against progress.
• The share of construction a facility will cover and whether equity must be fully spent first.
• A construction delay, which extends interest, prolongs site overheads and pushes revenue later.
• Slower absorption after completion, which holds the peak open instead of closing it.
• A cost overrun during the heaviest spend months, when there is least headroom.

What the numbers tell you

• Peak funding, not total cost, decides whether you can do the project at all.
• Land and soft costs are usually pure equity, and they land before anything is visible.
• The deepest point of the cash flow is near completion, which is also when a delay hurts most.
• Off-plan proceeds reduce the peak but arrive under rules you must confirm before modelling them.
• Always model the peak with revenue delayed, because absorption is the assumption most likely to slip.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.