澳洲Australia property Selling off the plan before settlement |


在澳大利亚 I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo


hi, I've been researching on this forum about off the plan purchases, however a lot of the threads are quite old.. so was after some up to date advice from anyone please.

we're looking at purchasing our first investment - off the plan 1x1 apartment, settlement is definitely in two years. The purpose of this investment is to sell before settlement, in over 12 months obviously to get capital gains discount. We are confident the Perth market is still growing for apartments in CBD area and will make a profit and the developer has a good reputation. The developer is also offering a 24 month rental guarantee which we aren't too concerned about given our personal goals to sell..

Deposit is 10% say $50k, which will come from the equity on our home - we will either increase our existing home loan by $50k or draw up another separate loan for just $50k (secured over our home). We're leaning to the latter for tax purposes- Any opinions are welcome tho.

My main concerns are about the contract with the developer and the on-selling process.
1. When does title to pass to us- when we pay the deposit?
2. What items do we need to look out for in the contract to ensure we can sell 'our' apartment prior to settlement?
3. Is there usually a penalty to sell it before settlement? Is there something in the contract? Other extra/hidden costs?
4. Do we then pay stamp duty when we on sell it?
5. How do you sell it- Do you go through the developer? Or through your own real estate agent?

I'm concerned about the nitty gritty details of this contract as I have not had experience with one, and want to make sure we can sell before settlement date.  

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Hi Sasha

I am in exactly the same boat right now with an OTP purchase due for completion in 2012.

So was about to post today with pretty much identical questions until I saw what you wrote....

I look forward to the forum members helping us out hopefully by answering some of your great questions:)

Cheers

Warrabista  

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sasha said: ↑
hi, I've been researching on this forum about off the plan purchases, however a lot of the threads are quite old.. so was after some up to date advice from anyone please.

we're looking at purchasing our first investment - off the plan 1x1 apartment, settlement is definitely in two years. The purpose of this investment is to sell before settlement, in over 12 months obviously to get capital gains discount. We are confident the Perth market is still growing for apartments in CBD area and will make a profit and the developer has a good reputation. The developer is also offering a 24 month rental guarantee which we aren't too concerned about given our personal goals to sell..

Deposit is 10% say $50k, which will come from the equity on our home - we will either increase our existing home loan by $50k or draw up another separate loan for just $50k (secured over our home). We're leaning to the latter for tax purposes- Any opinions are welcome tho.

My main concerns are about the contract with the developer and the on-selling process.
1. When does title to pass to us- when we pay the deposit?
2. What items do we need to look out for in the contract to ensure we can sell 'our' apartment prior to settlement?
3. Is there usually a penalty to sell it before settlement? Is there something in the contract? Other extra/hidden costs?
4. Do we then pay stamp duty when we on sell it?
5. How do you sell it- Do you go through the developer? Or through your own real estate agent?

I'm concerned about the nitty gritty details of this contract as I have not had experience with one, and want to make sure we can sell before settlement date.Click to expand...
Do you have a plan in the event you can't sell prior to settlement?
If not, you should create one ASAP.

And understand that a rental "guarantee" is exactly as strong as the financial position of the developer.  

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sasha said: ↑
hi, I've been researching on this forum about off the plan purchases, however a lot of the threads are quite old.. so was after some up to date advice from anyone please.Click to expand...
All the old info and warnings on OTP is still as valid today.

sasha said: ↑
we're looking at purchasing our first investment - off the planClick to expand...
Ohhhhhh groan :(
sasha said: ↑
1x1 apartment,Click to expand...
Double groan :(
sasha said: ↑
settlement is definitely in two years.Click to expand...
No it isn't. There is nothing definite about OTP. The developer won't even be able to get finance to build it unless he sells enough OTP to start with.

sasha said: ↑
The purpose of this investment is to sell before settlement,Click to expand...
Then it is not an "investment". You are just gambling on a price increase in this part of the property market in the next 2 years.
sasha said: ↑
in over 12 months obviously to get capital gains discount.Click to expand...
Where are you getting this advice from :confused:
sasha said: ↑
We are confident the Perth market is still growing for apartments in CBD areaClick to expand...
I see......mmmm
sasha said: ↑
and will make a profitClick to expand...
Uh huh
sasha said: ↑
and the developer has a good reputation.Click to expand...
At least you did that part right.
sasha said: ↑
The developer is also offering a 24 month rental guaranteeClick to expand...
Oh dear God....back to the groaning again :(
sasha said: ↑
which we aren't too concerned about given our personal goals to sell..Click to expand...
You have goals to sell, buyers might not have goals to buy.....just bear that in mind.

sasha said: ↑
My main concerns are about the contract with the developer and the on-selling process.
1. When does title to pass to us- when we pay the deposit?Click to expand...
On settlement you get title. Until then you just have an "interest".

sasha said: ↑
2. What items do we need to look out for in the contract to ensure we can sell 'our' apartment prior to settlement?Click to expand...
A clause that specifically prevents you from doing so.

sasha said: ↑
3. Is there usually a penalty to sell it before settlement? Is there something in the contract?Click to expand...
Read the contract.

sasha said: ↑
Other extra/hidden costs?Click to expand...
Agent selling commissions. GCT. Opportunity cost of tying up your $50K for 2 years. Here's an idea- why not use a deposit bond? (and keep your cash for other things)

sasha said: ↑
4. Do we then pay stamp duty when we on sell it?Click to expand...
Not sure in WA but in NSW within 30-60 days of exchange usually.

sasha said: ↑
5. How do you sell it- Do you go through the developer? Or through your own real estate agent?Click to expand...
Read the contract, if nothing mentioned, use whatever means you like.

sasha said: ↑
I'm concerned about the nitty gritty details of this contract as I have not had experience with one, and want to make sure we can sell before settlement date.Click to expand...
Make sure you are 'able' but making sure you 'can' is up to the market conditions at the time you want to sell.

As a backup plan, make sure you can settle and can hold the property for a number of years if you need to, without financial hardship.  

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Token Funder said: ↑
And understand that a rental "guarantee" is exactly as strong as the financial position of the developer.Click to expand...
Or the financial position of the $2 shelf company that the developer (if he's smart) will use to give the guarantee.

Good investments do not need a rental guarantee. They can stand up in their own right.  

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if this is the ispire development done by diploma PLEASE think very carefully. it is well overpriced IMO and also has a car stacker which i believe residents at zenith (same developer) will be whinging about once they start moving in (any time now)

i/my family have bought 5 OTP in perth cbd in the past and wouldnt again despite doing ok out of it.

if it is the adagio development by finbar (the only other one i cant think of that might charge as much as that) id be careful too as it seems overpriced to me. you would need to be selling at close to 600k in order to make a reasonable profit of 50k for an apartment that costs around 500k

feel free to disregard my thoughts btw, im just a random idiot on the net but ive seen a fair few people burnt by OTP investments in the past

re your questions though, yes you will have to pay stamp duty, yes you can sell through your own agentand title only passes to you when it is created, ie at settlement once the work is done. if you onsell it will be a simultaneous settlement.

re the nitty gritty unfortunately you will have to go through the contract in detail as they arent all made equal and even what i have said above is generally what happens and may not be the case here (apart from stamp duty being payable).

edit - another point to note is that you can defer stamp duty payts for OTP purchases for 12 months but you will then have to pay it (despite not settling on the property) so pls budget for it.  

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Propertunity said: ↑
All the old info and warnings on OTP is still as valid today.
Propertunity said: ↑
Ohhhhhh groan :(
Double groan :(Click to expand...
Thanks for your input propertunity but hope you aware of house/apartment prices in Perth and WA in general, especially with our mining boom.

And what do you have against a 1x1? its something small to start with.
ps. I don't need your 'groanings', sorry for asking questions, I'm just seeking some knowledge.

Propertunity said: ↑
No it isn't. There is nothing definite about OTP. The developer won't even be able to get finance to build it unless he sells enough OTP to start with.Click to expand...
What I meant was that we are after something that will settle later, rather than sooner. if its 3 years instead of 2, fine with us. Because we would like to sell in 12 months anyway.

Propertunity said: ↑
Then it is not an "investmet". You are just gambling on a price increase in this part of the property market in the next 2 years.Click to expand...
And yes we are gambling on a price increase, god even if its a small one, its our first investment, its a start!

Propertunity said: ↑
Where are you getting this advice from :confused:Click to expand...
You get 50% CGT discount of the capital gain as long as the asset was owned for at least 1 year. Its common advice which is accessible from your tax accountant or I suggest look up on ATO website :p

Propertunity said: ↑
I see......mmmm
Uh huh
At least you did that part right.Click to expand...
of course I'm going to go through developer who I know others have dealt with and has a long standing rep. geez good thing I stated that here lol.

Propertunity said: ↑
Oh dear God....back to the groaning again :(Click to expand...
and why groan at the rental guarantee on offer? what's so bad with it? anyway that has nothing to do with our decision making here, unless someone can please state (rather than just groan) how this is a factor?

Propertunity said: ↑
You have goals to sell, buyers might not have goals to buy.....just bear thst in mind.

On settlement you get title. Until then you just have an "interest".

A clause that specifically prevents you from doing so.

Read the contract.

Agent selling commissions. GCT.

Not sure in WA but in NSW within 30-60 days of exchange usually.

Read the contract, if nothing mentioned, use whatever means you like.

Make sure you are 'able' but making sure you can is up to the market conditions at the time you want to sell.

As a backup plan, make sure you can settle and can hold the property for a number of years if you need to, without financial hardship.Click to expand...

thank you for the help! (despite the groans). I don't have a contract to read as still in early stages of decision making, I was interested in what other people may have seen in their OTP contracts.

the back up plan incase we don't sell before settlement is keep it and we are able to financially settle. but this is not what we want.

I'm still interested in hearing details of contract clauses/penalties and how people have personally gone about selling before settlement!?Click to expand...
 

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Propertunity said: ↑
Or the financial position of the $2 shelf company that the developer (if he's smart) will use to give the guarantee.

Good investments do not need a rental guarantee. They can stand up in their own right.Click to expand...
oh ok, thanks, I was wondering what were the views on rental guarantee  

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sanj said: ↑
if this is the ispire development done by diploma PLEASE think very carefully. it is well overpriced IMO and also has a car stacker which i believe residents at zenith (same developer) will be whinging about once they start moving in (any time now)

i/my family have bought 5 OTP in perth cbd in the past and wouldnt again despite doing ok out of it.

if it is the adagio development by finbar (the only other one i cant think of that might charge as much as that) id be careful too as it seems overpriced to me. you would need to be selling at close to 600k in order to make a reasonable profit of 50k for an apartment that costs around 500k

feel free to disregard my thoughts btw, im just a random idiot on the net but ive seen a fair few people burnt by OTP investments in the past

re your questions though, yes you will have to pay stamp duty, yes you can sell through your own agentand title only passes to you when it is created, ie at settlement once the work is done. if you onsell it will be a simultaneous settlement.

re the nitty gritty unfortunately you will have to go through the contract in detail as they arent all made equal and even what i have said above is generally what happens and may not be the case here (apart from stamp duty being payable).

edit - another point to note is that you can defer stamp duty payts for OTP purchases for 12 months but you will then have to pay it (despite not settling on the property) so pls budget for it.Click to expand...
thanks sanj. we had a look at ispire too along our way of considering OTP, .. I am concerned about its value too.. you think the car stacker's not a cool idea?;)

oh god no I wouldn't invest in the adagio, waaaayy overpriced. but I do like the sound of Finbar, (will wait for something else in the future by them perhaps?)

yep heard about deferring stamp duty so will budget accordingly.  

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As a general rule these days all OTP prices are inflated to be comparable with predicted prices at completion. People used to make money by flipping prior to settlement but the builders got wise and increased the prices accordingly so that they keep the profit.

Therefore it is doubtful that you will see any Capital Gains in the first 12-18 months.

Also check the contract to make sure that the developer is not able to cancel the contract if the prices increase during the build (so that he can re-sell at a higher price).

Finally you may need a reasonable deposit depending upon the size of the apartment as banks also take a very cautious approach to lending on OTP apartments - especially smaller ones that are susceptible to devaluations. And if the worst happens and values stagnate or drop during the build you may be stuck with an on-paper loss or you may have to put up more deposit if the value comes in lower than contract price.

I am not an expert nor can I predict the future, however I am pretty close to a few bank lenders and have a number of horror stories about OTP purchases!  

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sasha said: ↑
Thanks for your input propertunity but hope you aware of house/apartment prices in Perth and WA in general, especially with our mining boom.Click to expand...
I am very familiar with your mining boom and also with your house prices (depite being from the Eastern States :)).

I spent 15 years of my life as an IT consultant flying to every Australian & NZ capital city on a very regular basis whilst building a substantial RE portfolio in my spare time. Downside is that I am now very opinionated.:p

sasha said: ↑
And what do you have against a 1x1? its something small to start with.Click to expand...
Future resale appeal to the broad market. Long term CG.
sasha said: ↑
ps. I don't need your 'groanings', sorry for asking questions, I'm just seeking some knowledge.Click to expand...
Look, I'm sorry to rain on your parade. But if you truly read the other OTP comments in this forum by doing a search, then you'll see why the 'groans'.

OTP can work well in a rising market. We are yet to see that confirmed in the PER market, with many places still falling.
Dangers are:
1. Finishes can vary 10 -15% off the display unit - and this can seriously impact end value - especially when it comes to kitchens & bathrooms.
2. You may not qualify for finance when you have to settle.
3. You may not find a buyer (at the right price) if you simply want to flick on to the eventual end purchaser.
4. You may be competing with other OTP units when selling.
5. If the market tanks you still have to settle.

This can be like an areoplane crash. For a plane to crash it is usually not just one single thing that causes it to go down, but a series of things which must happen for the worst.

For you to make money on this you need a series of things to happen:
1. Market to rise
2. Credit to improve
3. Interest rates to stay on hold or fall
4. Mining boom to kick in (post carbon tax environment)
5. Demand to exceed supply at the time you want to sell
6. Developer to stay afloat
7. No change (except for the better) in your personal circumstances
and the list goes on......what are the chances of all that happening?

Look, I can go to my next suburb down the road today, buy a property for $50K below market (off a distressed seller. And I can find one of those.) Then I can do a reno for $50K and make it worth $100K more, thereby making $150K gross profit on sale. Less my expenses I might walk away with $100K). I can do all that in 3-4 months and take my profit and pay tax on it while you are still sitting there for another 8 months in the 'hope' that you can make what I just did. I can do another 2 while I'm waiting for you. I can do this in today's market because I reasonably know what it will be like in 3 months. You have no idea what your market will be like in 1 - 2 years from now......that's why all the groaning :rolleyes:


sasha said: ↑
And yes we are gambling on a price increase, god even if its a small one, its our first investment, its a start!Click to expand...
And if it is a loss, then it puts you back a number of years. Why gamble when you can do things that are more of a sure bet?

sasha said: ↑
and why groan at the rental guarantee on offer? what's so bad with it?Click to expand...
Let's say your unit rents for $500pw (to be generous). That's $25K pa or $50K over 2 yrs. As a developer all I have to do is inflate the purchase price to you by $50K and I'm covered. Heck, I can leave the unit sit there vacant and still pay you your rent of $500pw and it won't bother me in the slightest.

just sayin' ....  

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Propertunity said: ↑
Future resale appeal to the broad market. Long term CG.Click to expand...
This is where I disagree, 1x1's have a higher appeal

Propertunity said: ↑
Look, I can go to my next suburb down the road today, buy a property for $50K below market (off a distressed seller. And I can find one of those.) Then I can do a reno for $50K and make it worth $100K more, thereby making $150K gross profit on sale. Less my expenses I might walk away with $100K). I can do all that in 3-4 months and take my profit and pay tax on it while you are still sitting there for another 8 months in the 'hope' that you can make what I just did. I can do another 2 while I'm waiting for you. I can do this in today's market because I reasonably know what it will be like in 3 months. You have no idea what your market will be like in 1 - 2 years from now......that's why all the groaning :rolleyes:Click to expand...
don't like the idea of buying/renovating/selling at this stage, the repayments until you sell would just be too uncomfortable. at present we only want to make a small initial outlay of a deposit.

ahh that renovation game - get tradies in and out for cosmetic/design improvements and all that time and hassle...it would be a second job!

reselling a house in 3-4 months you miss out on CGT discount but you don't seem to mind.


Propertunity said: ↑
And if it is a loss, then it puts you back a number of years. Why gamble when you can do things that are more of a sure bet?Click to expand...
I disagree that reno's are a sure bet (if that's what your suggesting?). too many renovation horror stories and possible overcapitalising, and time lost waiting for a house to sell and tradies to show up and building approvals and choosing correct design colour schemes etc. meh too much work for the average investor! But you obviously have experience and a strategy so it works for you. But for us, as first time investors, we don't want to over capitalise on a huge loan such as a house plus reno. if we had the time and money then perhaps, maybe one day. hence we'll stick to the small desposit for off the plan.

Propertunity said: ↑
Let's say your unit rents for $500pw (to be generous). That's $25K pa or $50K over 2 yrs. As a developer all I have to do is inflate the purchase price to you by $50K and I'm covered.Click to expand...
thanks I appreciate that insight.  

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i would be very cautious about OTP at this stage in the market. I dont know Perth that well, but from all I've read/heard, I think it still has plenty of room to fall.
there is also global economic issues to be concerned with. and of course, you dont really know what you are going to get, or when you will get it.
A rental guarantee is a way for the developer to overcharge on the purchase price... essentially, you are normally paying for that 2 years rent. It also gives an inflated idea of what rental you can get in the long term, which inflates the value of the property. So, after 2 years, the rental income drops considerably, as does the value of the property

I agree with Propertunity. A one bed apartment has a more narrow appeal than a 2 bed.

I know you are looking to "flip" the property, but its a very high risk approach for a first time investor. I doubt that you will make much profit, and there is a high risk of losing money.

You dont need to do a reno, but even a brand new unit, already completed, would be a lower risk, and likely have a higher return.  

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