Net Realisable Value (NRV) is what your finished development is expected to sell for, minus the cost of actually selling it. It shows up in two places that hit your margin: the figure a lender sizes your loan against, and the figure your accountant uses to value unsold stock at year end. Get it wrong in either place and the deal looks stronger on paper than it does in the bank’s model or in your accounts.
Most pages that rank for “net realisable value” explain it as an accounting formula for a warehouse full of widgets. That is accurate, and it matters at year end, but it is not how a developer first meets the term. You meet Net Realisable Value (NRV) when a lender’s credit team strips the Goods and Services Tax (GST) and the selling costs out of your end value and lends against what is left, and again when your accountant tests whether unsold apartments are still worth what you paid to build them. This guide covers both, with the numbers, the primary sources, and the traps that quietly cost margin.
What is net realisable value (NRV) in property development?
Net Realisable Value (NRV) is the net amount you expect to realise from selling your completed development, after the costs of completing and selling it are taken out. In a feasibility and a loan it is usually read as Gross Realisation Value (GRV) less Goods and Services Tax (GST) and less the costs of sale. In your accounts it is defined by the accounting standard as the estimated selling price less the estimated costs to finish the job and the estimated costs to make the sale.
Both definitions describe the same idea from two angles: the cash actually left in your hand once the project is finished and sold, not the headline sales total.
The headline sales total is Gross Realisation Value (GRV), sometimes called the “as if complete” or “on completion” value. It is every lot or apartment added up at its expected sale price. Net Realisable Value (NRV) takes that gross figure and removes the leakage that never reaches you: the Goods and Services Tax (GST) you remit, the agent and marketing fees, and the legal costs on settlement. What remains is the conservative number a lender will trust and the number that protects you in your accounts when the market turns.
The reason both a banker and an accountant reach for a “net” figure is the same. Carrying a project at its gross sale price assumes a perfect sell-down with no selling costs and no soft patch in the market. Neither assumption survives contact with a real campaign, so both the lender and the accounting standard make you prove the value net of what it costs to get there.
How is net realisable value (NRV) different from gross realisation value (GRV)?
Gross Realisation Value (GRV) is the gross end value of the completed project. Net Realisable Value (NRV) is that same value after Goods and Services Tax (GST) and selling costs come out. Gross Realisation Value (GRV) is the bigger, more optimistic number; Net Realisable Value (NRV) is the smaller, more bankable one.
Here is the relationship on a worked example. Take a small apartment project expected to sell for $26.4 million including Goods and Services Tax (GST):
- Gross sales including Goods and Services Tax (GST): $26,400,000
- Less Goods and Services Tax (GST) remitted (one eleventh, full rate): $2,400,000
- Gross Realisation Value (GRV), net of Goods and Services Tax (GST): $24,000,000
- Less selling costs (agent, project marketing and legals), assume 2.5%: $600,000
- Net Realisable Value (NRV): $23,400,000
So a $26.4 million headline becomes a $23.4 million Net Realisable Value (NRV). That $3 million gap is not a rounding issue. It is the difference between the number a developer wants to quote and the number a lender will actually lend against, and it is where deals that “stack” on a spreadsheet quietly stop stacking in a credit submission.
A note on terminology for anyone working from overseas templates. United Kingdom material talks about Gross Development Value (GDV) where Australian practice says Gross Realisation Value (GRV). The two labels describe the same gross end value, so a Gross Development Value (GDV) on a United Kingdom feasibility is your Gross Realisation Value (GRV), and the same netting down to a Net Realisable Value (NRV) applies once you strip Goods and Services Tax (GST) and selling costs out. The same lower of cost and Net Realisable Value (NRV) test on unsold stock applies internationally as well, under International Accounting Standard 2 (IAS 2) Inventories, the global parent of the Australian standard. The split between gross and net, and how lenders read each, is covered alongside the profit metrics in the guide to margin on cost versus margin on revenue.
Where does the Goods and Services Tax (GST) sit in net realisable value (NRV)?
Net Realisable Value (NRV) is almost always read net of Goods and Services Tax (GST), because the Goods and Services Tax (GST) on a sale is money you collect and pass to the Australian Taxation Office (ATO), not revenue you keep. For most new residential sales the developer is liable for Goods and Services Tax (GST), and since 1 July 2018 the purchaser usually withholds it and pays the Australian Taxation Office (ATO) directly at settlement. The Australian Taxation Office sets out the Goods and Services Tax (GST) at settlement rules, with the purchaser generally withholding one eleventh of the price, or 7% where the margin scheme applies.
The margin scheme can lower the Goods and Services Tax (GST) you remit, because it calculates the tax on the margin between sale price and an eligible acquisition value rather than on the full price. That lifts your true net proceeds. The catch for Net Realisable Value (NRV) is that most lenders, and most conservative feasibility conventions, ignore the margin scheme benefit when they set the lending figure. They strip the full Goods and Services Tax (GST) out to be safe, then let the margin scheme upside flow through as a buffer rather than something the loan relies on. So your accounts and your real cash position may reflect the margin scheme, while the Net Realisable Value (NRV) the bank lends against does not.
How do lenders use net realisable value (NRV) to size a development loan?
Lenders cap a development facility two ways at once, against the end value and against the cost, and the lower cap wins. The end-value cap is set against Gross Realisation Value (GRV) or, more conservatively, against Net Realisable Value (NRV). The cost cap is set against Total Development Costs (TDC). Your facility is the smaller of the two.
On the end-value side, a typical first mortgage through the non-bank sector goes up to around 65% of Gross Realisation Value (GRV), with some lenders stretching to 70% or 75%, according to one Melbourne brokerage’s summary of how development lending amounts are set. Crucially, the same source notes the lender “will deduct the Goods and Services Tax (GST) from the gross sales figures, and sometimes they will also deduct sales commissions and determine their lending limit against that”. Deduct Goods and Services Tax (GST) and selling costs and you are no longer lending against Gross Realisation Value (GRV); you are lending against Net Realisable Value (NRV).
On the cost side, the same brokerage notes non-bank lenders are often comfortable at around 80% of Total Development Costs (TDC), sometimes higher, while banks tend to sit nearer 70%. Push past those levels and you are generally into mezzanine finance or preferred equity rather than senior debt.
Run both caps on the worked example. Say the project carries Total Development Costs (TDC) of $20 million, a Net Realisable Value (NRV) of $23.4 million and a Gross Realisation Value (GRV), net of Goods and Services Tax (GST), of $24 million:
- End-value cap at 65% of Net Realisable Value (NRV): 0.65 x $23,400,000 = $15,210,000
- End-value cap at 65% of Gross Realisation Value (GRV): 0.65 x $24,000,000 = $15,600,000
- Cost cap, bank at 70% of Total Development Costs (TDC): 0.70 x $20,000,000 = $14,000,000
- Cost cap, non-bank at 80% of Total Development Costs (TDC): 0.80 x $20,000,000 = $16,000,000
For the bank, the Total Development Costs (TDC) cap of $14 million bites first, so the facility is $14 million and the choice of Gross Realisation Value (GRV) versus Net Realisable Value (NRV) does not change the answer. For the non-bank lender, the $80% cost cap of $16 million is above both end-value caps, so the end value binds, and whether they use $15.6 million (Gross Realisation Value) or $15.21 million (Net Realisable Value) decides the loan. That $390,000 swing is the selling-cost haircut, and it is exactly the kind of figure that decides whether you need to find more equity. Working out which cap binds, and when peak debt lands, is what a development cashflow model is for.
Why do lenders read the end value net rather than gross?
Lenders read the end value net because the gross figure is not what they could recover if the project stalled. If a developer hands the keys back mid sell-down, the financier still has to pay agents to move the stock and lawyers to settle it, and it still has to account for the Goods and Services Tax (GST) on each sale. Lending against Gross Realisation Value (GRV) would mean lending against dollars that were always going to be spent reaching settlement. Lending against Net Realisable Value (NRV) builds that reality into the cap.
Regulated lenders also work under prudential rules that push them toward conservative collateral values. The Australian Prudential Regulation Authority (APRA) requires Authorised Deposit-taking Institutions (ADIs) to value security conservatively and not to inflate collateral to get a loan approved, set out in its Prudential Standard APS 220 Credit Risk Management, with the accompanying credit risk practice guide pointing lenders toward independent valuations free of conflict. A net figure, taken from an independent valuation rather than an agent’s appraisal, is how that conservatism shows up on a development deal.
The valuation itself is usually done on an “as if complete” basis by a registered valuer, assuming the project is finished to plan and approved. The Australian Property Institute (API) sets the procedures valuers follow in its valuation procedures for real property, and a development financier will lean on that independent “as if complete” number, then net it down, rather than take a developer’s own sales estimate. The gap between an optimistic in-house appraisal and a formal valuation is one of the most common places a feasibility springs a leak, which is part of why a development finance broker will pressure-test your end value before it goes to credit.
What about the “in one line” or “as is” value?
Some lenders also look at an “in one line” value, which is different again from Net Realisable Value (NRV). It estimates what the whole project would fetch if sold in a single bulk transaction rather than unit by unit, and it usually sits well below the summed individual prices, often discounted in the order of 15% to 25%. That figure answers a fire-sale question (“what could we get if we had to move it all at once”), where Net Realisable Value (NRV) answers an orderly-sale question (“what is left after a normal campaign and its costs”). Both are conservative lenses on the same project, and it pays to know which one a particular lender is leaning on before you assume your headline value is the number that counts.
Where does net realisable value (NRV) sit in your feasibility model?
In a feasibility, Net Realisable Value (NRV) sits between your gross sales line and your loan sizing. You build Gross Realisation Value (GRV) up from individual unit prices, strip Goods and Services Tax (GST) and selling costs to get Net Realisable Value (NRV), then test your facility against both Net Realisable Value (NRV) and Total Development Costs (TDC) to see which constraint binds. Modelling it gross and only netting down later is how developers talk themselves into a loan the bank will not write.
The cleanest discipline is to keep Goods and Services Tax (GST) consistent across the model: profit, Total Development Costs (TDC), Gross Realisation Value (GRV) and Net Realisable Value (NRV) should all sit on the same Goods and Services Tax (GST) basis, and the value that flows into your loan sizing and your margin should be net of Goods and Services Tax (GST). Mixing a Goods and Services Tax (GST) inclusive end value with Goods and Services Tax (GST) exclusive costs is a fast way to manufacture a margin that does not exist.
In Feasly, Net Realisable Value (NRV) is one of the bases you can size a debt facility against, so you can set a Loan to Value Ratio (LVR) on Net Realisable Value (NRV) rather than on Gross Realisation Value (GRV) and see the more conservative facility directly. Consistent with how most lenders read it, the Net Realisable Value (NRV) here is always calculated net of Goods and Services Tax (GST) and deliberately excludes the margin scheme benefit, keeping the lending figure on the conservative side and letting any margin scheme upside sit as headroom.
How does net realisable value (NRV) work in your accounts?
In your financial statements, completed and partly built stock held for sale is inventory, and it is carried at the lower of cost and Net Realisable Value (NRV). That rule comes from the accounting standard, which states plainly that “inventories shall be measured at the lower of cost and net realisable value”. When the expected sale value of your stock, net of the costs to finish and sell it, drops below what it cost you to build, you write the stock down to that lower figure and the write-down hits your profit and loss immediately, before any sale happens.
Land and buildings you are developing to sell are inventory under Australian Accounting Standard AASB 102 Inventories, the same standard that governs any other trading stock. Net Realisable Value (NRV) under that standard is “the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale”. For a half-built project that means the expected end sale price, less the construction still to spend, less the agent and legal costs to come.
When does a developer have to write stock down to net realisable value (NRV)?
You write stock down when its Net Realisable Value (NRV) falls below its accumulated cost, which on a development usually happens because end values soften, because the cost to finish blows out, or both. The standard spells this out: the cost of inventory may not be recoverable “if their selling prices have declined” or “if the estimated costs of completion or the estimated costs to be incurred to make the sale have increased”, per the net realisable value provisions of AASB 102.
Work it through on the same project. Suppose you are part way through, have spent $12 million to date (land, construction so far, and capitalised interest), and still expect to sell for $24 million net of Goods and Services Tax (GST), with $8 million of build left and $600,000 of selling costs:
- Net Realisable Value (NRV) = $24,000,000 less $8,000,000 to complete less $600,000 selling = $15,400,000
- Cost to date = $12,000,000
- Lower of cost and Net Realisable Value (NRV) = $12,000,000, so no write-down
Now assume the market softens and your realistic end value falls to $18 million:
- Net Realisable Value (NRV) = $18,000,000 less $8,000,000 less $600,000 = $9,400,000
- Cost to date = $12,000,000
- Lower of cost and Net Realisable Value (NRV) = $9,400,000, so a $2,600,000 write-down through profit and loss
No apartment has changed hands, yet the accounts show a $2.6 million loss, because the project can no longer be expected to recover what has been sunk into it. This is the quiet risk in a “profitable” project carried through a downturn, and it is why developers holding stock across a soft patch watch Net Realisable Value (NRV) as closely as their lenders do.
Two technical points worth knowing, because they make write-downs more likely than developers expect. First, the cost side of the test keeps growing as you spend, and for a project that takes a substantial time to build, interest can be capitalised into that cost under Australian Accounting Standard AASB 123 Borrowing Costs. A long, highly geared build accumulates cost quickly, so the bar that Net Realisable Value (NRV) has to clear keeps rising. Second, the standard excludes selling costs from the cost of inventory, so marketing and agent fees never sit on the cost side of the test; they only ever reduce Net Realisable Value (NRV). The result is a measurement that is structurally cautious, which is the point of it.
Can a write-down to net realisable value (NRV) be reversed?
Yes. If the conditions that caused the write-down reverse, for example end values recover in a later period, the standard requires you to reverse the write-down, capped at the amount originally written down, so the stock is again carried at the lower of cost and the revised Net Realisable Value (NRV). The reversal rule in AASB 102 means a stock write-down is not necessarily permanent, though you can never write the asset back above its original cost. For a developer riding out a cycle, that means a down year can be partly clawed back in a recovery year, at least in the accounts.
What if you are building to hold rather than to sell?
If you are building to rent and hold rather than to sell, the asset is generally not inventory at all, so the lower of cost and Net Realisable Value (NRV) test does not apply to it. Property held to earn rent or for capital growth is investment property under Australian Accounting Standard AASB 140 Investment Property, measured at cost or fair value rather than tested against Net Realisable Value (NRV). The line matters for anyone weighing a build-to-rent scheme against a build-to-sell one, because the accounting, and the way a soft market shows up in your numbers, is different on each side. A change in use has to be real, more than a change of intention, before stock moves from one treatment to the other.
How does net realisable value (NRV) interact with tax for developers?
For tax, your development land and stock are usually trading stock, and trading stock is valued under its own rules, not by the accounting Net Realisable Value (NRV) write-down. An accounting write-down to Net Realisable Value (NRV) does not automatically give you a tax deduction. The two systems run on parallel tracks, and conflating them is a common and expensive mistake.
Under the trading stock valuation rules in section 70-45 of the Income Tax Assessment Act 1997, you value each item of trading stock at year end at its cost, its market selling value, or its replacement value, and you can choose item by item, as the Australian Taxation Office confirms in its guidance on valuing trading stock. Where the market has fallen, electing market selling value can bring a loss forward for tax in a way that loosely tracks the accounting Net Realisable Value (NRV) write-down, but it is a separate election with its own definition, and “market selling value” is not the same thing as Net Realisable Value (NRV).
The law goes further where stock is genuinely impaired. You can elect to value an item below all three of those figures where it is warranted by “obsolescence or any other special circumstances”, under section 70-50 of the same Act. That can matter for a developer holding stranded or unsaleable stock, though what counts as special circumstances is fact specific and worth confirming with a tax adviser before relying on it.
Sitting underneath all of this is whether your project is on revenue account or capital account in the first place. Land held by a developer as trading stock is taxed on revenue account, which is a different world from a capital gains tax asset with its discount and its different timing. The distinction drives how every dollar of profit, and every write-down, is treated, and it is set out in the guide to tax on revenue versus capital account. Get the characterisation wrong and the Net Realisable Value (NRV) question is the least of your problems.
Does net realisable value (NRV) change between states and territories?
No. The method does not change anywhere in Australia. Net Realisable Value (NRV) as an accounting measure comes from Australian Accounting Standard AASB 102 Inventories, which is a national standard, and the trading stock valuation rules sit in the Income Tax Assessment Act 1997, which is Commonwealth law. Both apply identically in New South Wales, Victoria, Queensland, South Australia, Western Australia, Tasmania, the Australian Capital Territory and the Northern Territory. Lender practice on sizing against Gross Realisation Value (GRV) and Net Realisable Value (NRV) is national too.
What changes by state is the market evidence that feeds Net Realisable Value (NRV), not the way you calculate it. The end values your valuer can support, the depth of presales a lender expects, and the selling-cost percentages typical for your product all vary between a Sydney apartment project and a regional Queensland subdivision. So you apply the same formula everywhere and let local inputs do the work. There is no state-specific Net Realisable Value (NRV) rule to track, which is one fewer thing to check when you take a model across a border.
How does net realisable value (NRV) work for New Zealand developers?
For financial reporting, Net Realisable Value (NRV) works the same way in New Zealand (NZ) as in Australia. New Zealand (NZ) applies its own equivalent of the international inventories standard, New Zealand Equivalent to International Accounting Standard 2 (NZ IAS 2) Inventories, issued by the External Reporting Board. It carries the same lower of cost and Net Realisable Value (NRV) rule and the same definition of Net Realisable Value (NRV) as estimated selling price less costs of completion and costs to sell. Land and buildings a New Zealand (NZ) developer holds for sale are inventory under that standard, written down to Net Realisable Value (NRV) when end values fall below cost.
New Zealand (NZ) development funding follows a similar shape as well, with non-bank lenders sizing facilities against a gross realisation figure and against total project cost, then netting the end value down for selling costs and Goods and Services Tax (GST), which in New Zealand (NZ) runs at 15%.
Tax is where the two countries part company. New Zealand (NZ) does not tax developer land through the same trading stock valuation mechanism Australia uses, and land sales sit inside a different set of rules, including the holding-period test that has changed more than once in recent years. A New Zealand (NZ) developer should treat the accounting Net Realisable Value (NRV) and the tax position as separate questions and check the current land rules, including the New Zealand bright-line test, with a local adviser rather than reading across from Australian practice.
Common mistakes developers make with net realisable value (NRV)
The mistakes below all share one root: treating a gross or in-house number as if it were the conservative, net, independent figure the lender and the accountant actually use.
Feeding Gross Realisation Value (GRV) into a model the lender will read as Net Realisable Value (NRV). Building your feasibility on the gross end value, then presenting it to a bank that lends against Net Realisable Value (NRV), overstates your borrowing capacity by the Goods and Services Tax (GST) and selling costs. On the worked example that was a $3 million gap. Model net from the start.
Using an agent’s appraisal instead of an independent “as if complete” valuation. Lenders rely on a registered valuer, not a selling agent’s number, and the valuer’s figure is usually lower. If your equity plan depends on the appraisal, it can unravel when the valuation lands.
Assuming the margin scheme benefit in the lending figure. The margin scheme may genuinely lift your net proceeds, but most lenders strip the full Goods and Services Tax (GST) out anyway. Bank the conservative Net Realisable Value (NRV) for loan sizing and let the margin scheme upside sit as a buffer, not as something the facility leans on.
Mixing Goods and Services Tax (GST) bases. A Goods and Services Tax (GST) inclusive end value sitting on top of Goods and Services Tax (GST) exclusive costs produces a margin that looks real and is not. Keep every line on the same basis and read the end value net.
Forgetting Net Realisable Value (NRV) write-down risk on a project you think is profitable. A deal that pencils a healthy margin at today’s prices can still trigger a write-down through your profit and loss if end values soften before you sell, because the accounts test cost against a falling Net Realisable Value (NRV) every reporting date, sale or no sale. Stress-testing the end value down 5% and 10% shows you where that bites.
Double counting selling costs. Selling costs reduce Net Realisable Value (NRV); they are not also a separate cost line that hits the cost side of your margin. Count them once, on the revenue side, or you will understate the deal.
Net realisable value (NRV) at a glance
Net Realisable Value (NRV) is your end value made honest: Gross Realisation Value (GRV) less Goods and Services Tax (GST), less the cost of selling, and in your accounts less the cost of finishing too. Lenders size against it because it is what they could realistically recover; accountants test against it because stock should never be carried above what it will fetch. For a developer, the practical discipline is to model the end value net, keep the Goods and Services Tax (GST) basis consistent, take the end value from an independent valuation rather than an appraisal, and watch Net Realisable Value (NRV) against accumulated cost whenever the market is moving against you. The deals that survive a soft market tend to be the ones that were always read net.
This guide is general information for property developers and other industry readers, not financial, tax, legal or accounting advice. Figures, thresholds and lender practices change, so confirm the current position and your own circumstances with a suitably qualified adviser before relying on any of it.