Browse Forums Buying Land 1 Apr 05, 2022 10:45 pm Hi all, I'm about to embark on the arduous journey of buying my first home. For it, I'm considering buying a small(ish) block of around 350-375sqm. The land release is at a Stockland estate in Victoria, and the price is pretty competitive for what I've seen lately, considering how insane the housing and land market has gone down here in the past six months. I'm looking to buy now to prevent pricing myself out of the market completely by waiting, and considering how much I have saved, I feel now is the best time for me personally. All up, I'm looking at about $661,000 (current prices) for the house and land. It's just me purchasing the property, with my savings and some help from my late Grandmother's estate. However there are a few things that I'm concerned about that I'm seeing a lot of answers and opinions for on different sources online. 1. I have more than enough (just on six figures worth of my own savings) to service the deposit, however I've been told by the Stockland land salesperson that they require "Financial Pre-Approval" on or before the signing of the contract. In doing so, they also sent me letter that I could send to my broker that laid out they had gone through my credit history, obtained financial info from me and that I am "eligible to proceed with an application for finance from (a) panel lender up to the amount of $xxx". After this, I sent through a letter I got from the loans officer of the bank I'm planning to go through that advised how much I could borrow, however, according to him and the other bank I went to, this isn't actually "financial pre-approval" as from my understanding at least, they'd need to value to land etc before giving me actual conditional pre-approval for the loan, hence this wording feels somewhat slimy to me, and is used as a technicality to protect Stockland from what I'm about to ask. Considering I don't have official pre-approval, is it normal to have a "Subject to Finance" clause in the contract, or to request it? The financial advisor I'm in contact with mentioned that it would be dangerous to not have this included, and after a cursory read of a few conveyancing websites, I tend to agree. I don't feel too comfortable signing it unconditionally and then being liable for any damages if the market encounters problems and I end up with a lower evaluation from the bank, however from what I've read a lot of "Off the Plan" land is sold unconditionally, as if I don't sign the contract, there's someone right behind me who will. 2. Generally speaking, how accurate are the title dates for estates like this? Going on from my first point, I've (stupidly, or perhaps not) banked a lot of this on securing the lot and saving a lot more because the block I'm interested in has an expected title date of July 2023. On questioning about this, I was told occasionally the titles can come in earlier, however if it comes in early, then I'm going to be on the hook for more than I have before I need to take out the loan, especially because I might only have 12 months to get the build done. 3. How long generally do I have to get the house built? I take it this varies from estate to estate, however Stockland's websites are very, very light on actual information that I want to read before I even consider putting down $3k to secure a sales appointment and wasting their time. Is it basically as soon as the title comes in I should have the builder ready to go, or is there somewhat of a buffer for me to actually engage the builder that I'm thinking of building with. Any advice would be greatly appreciated, as the amount of information I'm receiving right now is bamboozling me and somewhat stressing me out. Re: Stockland Land Contracts/Subject to Finance 2Apr 06, 2022 8:22 am getting some form of pre-pre-aproval from the bank is fairly normal. different places call it different things. A letter of comfort, finance in principle etc. It basically says that subject to the credit assessment and valuations you should be able to borrow $X. Be aware that any finance approval you get today, wont be valid in 3-6 months time. It is perhaps this that stockland is after an assesment that youre good on current assesment and the assumption is you will be good in 12-18 months time. Keep in mind what ever youre approved for today does not guarantee a reassesment in your favour. Bank lending policies can (and do) change, rates will go up, macro prudential controls could be implemented forcing assessment rule changes (have occurred on and off for the last several years). AND developers have a nasty habit of including sunset clauses that give them the ability to cancel contracts and resell blocks at a higher value, which often occurs on sites that due to title +12 months from now. This is danger territory for people like you because while youre waiting and fantisising of your new home, your depsoits are tied up not earning you money and if a sunset claus is invoked, your lost opportunity cost is massive. If you do go ahead, 100% get a subject to finance clause in the contract if its not there. If they dont want one in there, move on. Stockland is huge and if you dont buy it, somone else will. So dont expect to win any fights if they arent willing to come to the party. Title dates tend to vary significantly. in the current climate, expect them to be late. building a smallish house can be done in around 6 months from site start if there arent any major delays or shortages. WHo knows where we will be in 2023. If I were you, i'd be looking for titled land or land titling in the next 3-6 months max where you can start the process with a builder now. Less risk of losing money, getting stung with increases, decline of reassessment of finance etc. good luck Dark matter scientist, can breathe underwater, mind reader and can freeze matter just by willing it. Trust me, its in my sig. Re: Stockland Land Contracts/Subject to Finance 3Apr 06, 2022 10:59 am We've bought the land from Stockland about a year ago. To satisfy the 'finance pre-approval' part, all they really needed is a copy of an e-mail from broker/bank that states your borrowing capacity. They didn't need the formal pre-approval which you get from submitting the application. And like Noname said, the finance approvals are only valid for 3-6 months, with land settlements in new developments usually taking way longer. This was required for them to actually put your name on a particular block of land, before any papers are signed. The contract itself still had a finance clause, however it's generally meaningless because the of the same point above - approvals are only valid for so long. So if the settlement takes longer, you have to go through the whole process of obtaining finance again. What we have done is ensured that we can borrow the required money in principle, then told them that we're happy that finance clause is satisfied and did the whole finance paperwork when we got indication from Stockland that the land is about to be registered. We were in position to accept that risk, however each person needs to look at their own circumstances and risk appetite. In terms of timelines: when we have signed the contract the indicative land registration date was 6-7 months away, and it slipped by about 2 months. In terms of construction - our contract stipulated a year from settlement date to start building and then a year from the start to finish iirc. I would suggest having everything lined up with the builder to start straight away, as it will be easier when you're first, since you don't have to worry about neighbors (especially when building to boundary). Also depending on what you're intending to build, the process of getting to the signed building contract can be quite long, so the earlier you start the better. I wouldn't worry about sunset clause horror stories too much with Stockland since they do so much development it's just not worth the hassle for them. Our land went up by about 100k prior to settlement and there were no indication of them delaying anything intentionally. Re: Stockland Land Contracts/Subject to Finance 4Apr 06, 2022 7:32 pm Thanks for the advice guys, it really means a lot. Just got off the phone with the Stockland sales person. Luckily she's not very pushy or taking advantage of any FOMO I might have so I had a pretty productive chat. Apparently the contract is unconditional, meaning I'll have to go through with it if I sign it. Going to have another chat to the bank/broker before I make any concrete decision w.r.t pulling the trigger, just to cross the T's and dot the I's so to speak. I don't think I'll have any issue servicing a loan (or getting one) once it titles, so worse case scenario I own a titled block which I can sell. Obviously this opens me up to serious risk, but I suppose I'll have I'll keep the thread updated with how I go. She's going to send me a dummy contract so I can give it a read and have my solicitor/conveyancor give it a once over before I make a decision. Worst case scenario, I sit this release out and wait for the next and maybe need to pay slightly more $$$ somewhere else, or consider buying an established property. strannik In terms of construction - our contract stipulated a year from settlement date to start building and then a year from the start to finish iirc. I would suggest having everything lined up with the builder to start straight away, as it will be easier when you're first, since you don't have to worry about neighbors (especially when building to boundary). This is what I was told too, seems like it's pretty standard then. strannik slipped by about 2 months. Was this two months before, or after the expected date? I still live at home with Mum and Dad so I'm not too concerned about a longer title date. Noname AND developers have a nasty habit of including sunset clauses that give them the ability to cancel contracts and resell blocks at a higher value, which often occurs on sites that due to title +12 months from now. This is danger territory for people like you because while youre waiting and fantisising of your new home, your depsoits are tied up not earning you money and if a sunset claus is invoked, your lost opportunity cost is massive. I'll make sure to have the contract checked over for this if I decide to try and nab an appointment on Saturday. From what I've ascertained online, it seems like Stockland don't have a history of doing something like this, and that it might be legally questionable here in Victoria to do so. Noname If you do go ahead, 100% get a subject to finance clause in the contract if its not there. If they dont want one in there, move on. Stockland is huge and if you dont buy it, somone else will. So dont expect to win any fights if they arent willing to come to the party. Considering I'll probably have a difference of maybe $160k left on the land to borrow, would it be an issue, in this case, if I did sign the unconditional contract, got the title, decided I didn't want to build and then just owned a titled vacant lot? Considering the rest of your post and from what I've seen on Domain, I imagine there's somewhat of a market for acquiring titled land already? Thanks again for the advice, I really appreciate it on such short notice. I'll keep the thread updated with how I end up going. Re: Stockland Land Contracts/Subject to Finance 6Apr 07, 2022 9:13 am quaker762 Considering I'll probably have a difference of maybe $160k left on the land to borrow, would it be an issue, in this case, if I did sign the unconditional contract, got the title, decided I didn't want to build and then just owned a titled vacant lot? Considering the rest of your post and from what I've seen on Domain, I imagine there's somewhat of a market for acquiring titled land already? Depends. A lot of these master planned developer estates have contract clauses that require you to: a) build on it within a certain time (usually within 12 months of settlement) b) get permission from the developer if you want to sell it after buying it and before building on it c) give the developer first option to buy back - sometimes at a loss of ~10%, sometimes at the rate it was sold to you and sometimes, if teh market went down, at the market rate. All of the above are designed to ensure that when you buy, you build on it ASAP. It prevents people land banking and ensures that the planned estate all comes together to the developers vision. They have a vested interest in making sure the place looks good, without vacant blocks dotted around the place. So when you get your contract looked at, have these looked for too. The other thing you have to consider, and i touched on it lightly before is finance approval in 12-18 months time when you're ready to go. RBA is predicted to move the cash rate to around 2.75% by end of 2023. So given current advertised rates are around the mid to high 2's, if the RBA does aggressively raise rates this fast, expect bank variable rates to be around the mid to high 4's or higher as a worst case scenario. When a bank assesses borrowing capacity, they don't use the advertised rate in their calcs. They use what's called a "stressed rate" which is usually between 2-2.5% higher than the rate you are applying for. The intent is to determine if you can survive enough rate rises in the event that they occur. SO your assessment could be done on a rate of potentially up to 6.5-6.9%. Now presuming you can still service that figure today, the bank will ask for your expenses as well. As you've seen, cost of living has been rising pretty quickly in the last few months. If we keep going in this trajectory, your expenses will be higher than they are today. Even if you live a modest lifestyle, the bank uses benchmarks to asses against - if you come under the benchmark because you are frugal, they will still use the benchmark, which erodes your affordability on paper. You can bet your bottom dollar that by this point banks will be exceptionally conservative in their calculations. There are various other benchmarks you will be subject to as well. Including level of debts and asset values etc. SO lets assume you don't have any debt except for that land (the asset), one of the expected outcome of rate rises is the cooling and expected contraction/correction of real-estate pricing. Currently the top end of the market has slipped ~5% in this first quarter and we've not actually had any RBA rises yet, just talk. The outer growth areas have remained stable, but history shows that what happens top end is a good indicator of what happens at the lower to mid end as time goes by. The when is variable, but it inevitably happens. If the contraction/correction cycle is long enough, and I can guarantee that if the RBA starts upping rates every month by 20-25 basis points until they hit 2.5%ish, the land you buy today will be worth a lot less in 12-18 months time. This is the primary reason stockland are looking for unconditional and not subject to finance. They know that in 12-18months a valuer will value it less and the bank may reject the loan. So that puts you in a tight spot. You will be legally obligated to buy the land at an inflated cost. How bad it will be is anyone's guess at this point. It might 5% different and not be so bad, but what if its 20 or 30% difference? That's a huge loss to you. If a bank decided not to lend you money, are you able to hustle up the remaining cost to buy the land outright? Because if you don't, you can be sued for breach of contract which will arguably be an even worse scenario. If you don't have the money, that leaves you with third tier "specialty" lenders that will lend you the money at exorbitant rates usually 3-4% higher than market. I know its a lot to consider, but working in this industry over 20 years, ive seen it happen time and time again to first home buyers. knowledge is power and realistically only you know what your financial situation and risk appetite is. I'm just putting some scenarios out there that as a firt time home buyer/builder you may not be aware of or considered. Maybe talk to your lawyer whan you have your contract looked at and get some real paid advice. Dark matter scientist, can breathe underwater, mind reader and can freeze matter just by willing it. Trust me, its in my sig. Re: Stockland Land Contracts/Subject to Finance 7Apr 10, 2022 4:30 pm Hi all, Thanks for the advice, guys, especially Noname. I decided not to go with the block as it would have put me dangerously close to the edge of what I can afford considering all of the risks you've outlined. I've decided to wait a bit, shop around and get some more advice on my finances before I proceed with anything. Also thinking of looking a little bit further out in Pakenham for something more in my price range. 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