Browse Forums Buying Land 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. Industry type domestic contracts are prepared by industry bodies for the benefit of the builders. This means that if you are the owner watch out. One of the points is… 0 3528 Hello, I am currently working on a study in regards to building contracts in Australia. I would like to interview people with their building experience in Australia and… 0 1421 you were just referred to get advice from your solicitor. This is a legal matter. Separately, why would you use a buyers agent for a house and land package? 3 70772 |