It has been 11 months since I submitted my application. Till now, only background checks are complete. There has been no progress after that.
If my daughters apply with me, under subsection 5(2), they wont be having any physical presence requirements, is that right ?
Well personally, I would NOT recommend withdrawing your application now after 11 months of processing. At this time, you can apply for your elder daughter under 5(1) since she is eligible and wait until you become a Citizen. Once you become a citizen, you can apply for your younger daughter 5(2).
This will be much quicker IMO than withdrawing an application that has progressed for 11 months and then applying again.
But, obviously, the decision is yours. So, if you want to withdraw the application and then apply together with your daughters, you can do that as well.
This is only my opinion. If someone has been in this situation before, they can weigh in and provide a more streamlined advise.
Wish you all the very best!