About 'debt agreement australia'|Debt Rattle, July 30 2008: Mutilation of Old Money
Buying off the plan is when the house/unit or apartment has not been built yet or is under construction '" this is now a commonly used property investment strategy in Canada. In our investing careers, we have purchased several properties off the plan that have been very successful each time. There are many benefits to following this buying strategy however there are some risks too. Benefits · Lower or alternative deposits '" which means you can use a lower cash deposit, a bank guarantee or a deposit bond. · Maximum tax advantages · Stamp duty savings in some states · Redesign possibilities · Long settlement which allows potential for capital growth · If settlement is longer than 12 months, then often a revaluation at the current market price can allow 100% finance. · Opportunity to on sell the property prior to settlement Risks · Project may not proceed at all · The finished product may not be what you expected · Expected capital growth doesn't eventuate or may fall · Developer may go into liquidation which stalls the project and ties up your deposit. As investors we always had our solicitors review the contract however we have found that sometimes they can miss things so as a rule, we generally review our own contracts in addition to the solicitor. Below is a list of items that we may expect to see as part of our contracts for purchasing off the plan deals: Floor plans Building plans Site plans Electrical plans A detailed outline of fixtures and fittings including the standard of quality '" some areas to watch out for are: - Kitchen cupboard construction - Exhaust fans in kitchen and bathrooms - Heating and cooling - Floor coverings '" type and quality - Wall finishes '" type and quality - Window dressings - Garage door '" remote or manual - Letter box - Clothes line - Appliances (white or stainless steel) model, standard or its equivalent - Fly screens - Security doors - Lighting and electrical layouts - Extent of garden beds and lawns We once had an experience whereby a contract for an 'off the plan' property we purchased in NSW had a list of inclusions that included a dishwasher, under sink water filter and power points in the kitchen. Being from Melbourne, we flew up to Sydney for the final inspection before settlement, and we noticed these items were missing however we did not have our contract with us to confirm. When we raised this with the builder at the time he refused to correct any of the above, claiming they were not part of the contract. Upon returning home we double checked the contract which stipulated that these items were included thus the builder was legally obliged to honor the agreement. Our lesson here was to always take our contracts with us during final inspection prior to settlement and to double check that all the inclusions are actually in the property. I have also bought another property in Melbourne while off the plan, it was the first time I had ever bought a property in a property exhibition; I was only 24 years old at the time, and come to think of it, I was still amazed how brave I was at the time. Luckily, I had a very good lawyer and he had gone through the contract in details with me with his colleagues in Victoria. What turned out to be quite an unique and can be a rather complicated issue for interstate investors are; each State has completely different laws for property investments; notably Victoria and Queensland have the most different rules compared to other States. There are also issues relating to stamp duty and also tax payable; whether these are payable during the settlement of the contract or during the final settlement; so that's an area you should check with your lawyer in details. Another clause in contract that is not very clear for may is the "Sunset Clause", my friend bought a property in 2002, and the builder put in a sunset clause '" a date whereby the property must be completed by a certain date or the developer has to refund the deposits back to purchasers. In this particular case; the developer left the sunset date open, this means they would have unknown date for property completion, it can be 1 year, it can be 10 years. The lawyer later found out that the developer had put in this clause open-dated; as the developer was facing financial difficulties; and it was uncertain if they could complete the project in time. The contract was amended and a date was agreed that the property must be completed within 36 months of the developer will refund purchasers the payment made to date. There are many hidden costs and potential dangers in off-plan purchases; they are often relate to the issues described above; typically relating to developer's financial ability to complete developments in time; a number of developers had collapsed in Australia during 2002-2004 as well as 2007 and 2008 due to rising debt costs; and this has left many developments unfinished; with investors' deposits locked away with unknown future; these are particular an issue in Gold Coast areas where developers are promoting holiday homes or engaged with small, private developers that have been bankrupt in the middle of construction. Back in the very hot property market, almost same as today's market; a lot of investors have turned themselves into "Off-the-plan Property Traders". These traders buy properties during the off-the-plan period; with the aim to make quick profit by selling them to the next buyer before the development is complete; usually asking for 10% to 30% profit. Initially, some investors did make good profit; for instance, invest in a property for $300,000 off-the-plan, put in $30,000 deposit then sold to someone else for $330,000, hence made $3,000 in one transaction. Eventually, as you had predicted; the property market crashed; and left a large number of unfinished developments around Australia. Investors either pay too much for the properties; or still sitting there waiting for the project to complete. The worst case scenario is for those traders who were unable to settle the property when the development is complete and they had never intended to settle the property due to lack of funds; they were the main force behind massive "forced selling" in properties; and had caused a large depreciation in apartments market in QLD, NSW and VIC in early 2004 and 2005; which eventually led to the crash of apartment markets in Australia. While I have personally bought 3 properties off-the-plan, my feeling is that I may not do it again. Building quality these days are much worse compared to back in the 1990s and early 2000s, and without seeing the finished property; it is hard to justify the quality and predict what future problems may occur. Our experience is also that, once the property settled; it is very hard to ask your developer to come back and fix the problems; even though the house is still under builders' warranty. In one particular case; where we bought a townhouse off-the-plan, the bathroom was leaking 3 times during the first year; it took on average 6 weeks for the builder to come in and fix it under their warranty! |
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