Profit on cost

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

Profit on cost is a development's expected profit divided by its total cost, including land, construction, fees, finance and contingency. A scheme costing US$25m that is expected to sell for US$30m shows a profit of US$5m, 20% on cost, or about 16.7% on the sales value. A lender reads it as the cushion between the project and a loss: in that scheme, sales values could fall by about a sixth, or costs rise by a fifth, before the project stops covering its cost, with the developer's own equity the next layer before the bank's loan.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.