has anyone bought an allotment from a developer prior to completion of earthworks and registration of title?
Do you have any info for buying land such as this?
Do you have any info for buying land such as this?
Buying land pre release
- Thread starter thefirstbruce
- Start date
Yes,
Have recently bought a number of lots on this basis.
Essentially a 10% deposit was required which was lodged in the RE agents trust account.
If you are dealing direct with the developer, then I would lodge any deposit required with a solicitor in their trust account.
We added a clause to the conditions of purchase that if the titles were not available by xxxx date, then the contract will come to an end and all deposits paid are to be refunded in full.
This allowed us an out clause in case the developer took too long to complete the release, but in hindsight we probably shoud have added that the discretion was on the purchaser part to invoke the clause.
So far we have settled on one of the staged release ( May ) without any problems.
The the next stage to due to settle this month.
Out of curiosity, why do you ask the question ??
kp
Have recently bought a number of lots on this basis.
Essentially a 10% deposit was required which was lodged in the RE agents trust account.
If you are dealing direct with the developer, then I would lodge any deposit required with a solicitor in their trust account.
We added a clause to the conditions of purchase that if the titles were not available by xxxx date, then the contract will come to an end and all deposits paid are to be refunded in full.
This allowed us an out clause in case the developer took too long to complete the release, but in hindsight we probably shoud have added that the discretion was on the purchaser part to invoke the clause.
So far we have settled on one of the staged release ( May ) without any problems.
The the next stage to due to settle this month.
Out of curiosity, why do you ask the question ??
kp
Hi,
Just a bit of history for ya all, people say wraps are illegal in SA, that is correct, the Land Act there forbids the purchase of land or business via an installment contract.
However what many people do not realise is that the Government abolished installment contracts, not because of wraps but because a developer in the '70s (I believe) sold parcels of land before title was registered, the developer went bust and there was no recourse for buyers and there was no clear title established.
This triggered the abolishment of installment contracts, because of subdivision of land, not due to wraps.
Now the history lesson is over (always good to ensure people are well informed), my comment is what recourse you have if the deal goes belly up ?
For example is the land held in trust in a separate entity from the development company ? Do you have recourse to tap the developers own assets if this goes bust before title is drawn?
I'm not saying whether this is good or bad, just go in with eye wide open.
Regards
Michael G
Just a bit of history for ya all, people say wraps are illegal in SA, that is correct, the Land Act there forbids the purchase of land or business via an installment contract.
However what many people do not realise is that the Government abolished installment contracts, not because of wraps but because a developer in the '70s (I believe) sold parcels of land before title was registered, the developer went bust and there was no recourse for buyers and there was no clear title established.
This triggered the abolishment of installment contracts, because of subdivision of land, not due to wraps.
Now the history lesson is over (always good to ensure people are well informed), my comment is what recourse you have if the deal goes belly up ?
For example is the land held in trust in a separate entity from the development company ? Do you have recourse to tap the developers own assets if this goes bust before title is drawn?
I'm not saying whether this is good or bad, just go in with eye wide open.
Regards
Michael G
Well....you don't pay any installments to the developer these days.
And if you do ( as in a progress draw) then it usually does not go direct to the developer, but to a third party ( solicitor or agent) to be held in trust till settlement can take place.
You just pay a small deposit to hold your block and pay the balance upon settlement when the title has been issued.
I understand what you are suggesting, but that was back in the days when credit was scarce, and borrowing from banks was difficult for the majority of ordinary citizens, hence the developers made it easier for the buyers to secure a block of land ( and easier for them to sell their subdivided blocks as well !!) by offering installment contracts.
These installments were paid direct to the developer and when they went bust, you had the ensueing problems you described above, hence the change in the laws.
As I said, the deposit put up is held in trust ( in this case with a RE agent in their trust account) and settlement does not take place until a title is available for dealing..
no title....no settlement....deposit refunded in full.
kp
And if you do ( as in a progress draw) then it usually does not go direct to the developer, but to a third party ( solicitor or agent) to be held in trust till settlement can take place.
You just pay a small deposit to hold your block and pay the balance upon settlement when the title has been issued.
I understand what you are suggesting, but that was back in the days when credit was scarce, and borrowing from banks was difficult for the majority of ordinary citizens, hence the developers made it easier for the buyers to secure a block of land ( and easier for them to sell their subdivided blocks as well !!) by offering installment contracts.
These installments were paid direct to the developer and when they went bust, you had the ensueing problems you described above, hence the change in the laws.
As I said, the deposit put up is held in trust ( in this case with a RE agent in their trust account) and settlement does not take place until a title is available for dealing..
no title....no settlement....deposit refunded in full.
kp
Thanks for input kph. I ask this question because I am looking at a new release very close to the foreshore of Moreton Bay in a hot suburb of Brisbane. I have never bought land pre release before and can imagine a host of compromising issues (see list below).
However, this release is in high demand. Of 20 odd lots, 17 were under contract within a week of going on market. And there will never be a new land release this close to the Bay in this suburb. In addition, many of the established homes are pre war and have heritage restrictions preventing demolition. Hence anyone seeking a comfortable home without a difficult reno, has no choice other than to build on a new lot.
My partner has signed a contract and we had put a $500 holding deposit into a solicitor's trust account, and have three weeks to seek finance from today. The developer says lot registration should occur in around 5 months, which is when settlement will occur.
Here's some concerns I have about buying pre lot registration.
- Is GST usually included in the marketed purchase price of the land? Do I have to charge gst when I sell as a speculative investor, even if not registerered for gst?
- I have heard developers can delay completion of earthworks etc, so as to delay registration of allotments beyond period of contract. This then renders contract void, and allows developer to resell at a higher price. Happens during hot markets. Has anyone been caught out like this?
- Are there any other gotchas one should be aware of when buying lots before completion of earthworks and registration? i.e. In Qld, I understand the dept of natural resources has to sign off on the development's plans before registration is granted. Does this potentially complicate things for the buyer under contract?
- Does the developer have to grade a flat house pad to build the dwelling on?
- Is it common for plans with DA approval to be adjusted during development, and thus change the shape, size, height, and other details of the allotment or easements?
- Does anyone know how lenient Brisbane City Council are with applications for relaxation of easement restrictions? What might be the cost associated with these applications to council?
- What is the best way for a buyer to protect themselves from a change in configuration or size of allotment.
- Is it a given that the developer would have connected services such as water, telephone, electricity, gas and sewerage?
- If I on sell without development, is the original covenant applicable to each subsequent buyer?
However, this release is in high demand. Of 20 odd lots, 17 were under contract within a week of going on market. And there will never be a new land release this close to the Bay in this suburb. In addition, many of the established homes are pre war and have heritage restrictions preventing demolition. Hence anyone seeking a comfortable home without a difficult reno, has no choice other than to build on a new lot.
My partner has signed a contract and we had put a $500 holding deposit into a solicitor's trust account, and have three weeks to seek finance from today. The developer says lot registration should occur in around 5 months, which is when settlement will occur.
Here's some concerns I have about buying pre lot registration.
- Is GST usually included in the marketed purchase price of the land? Do I have to charge gst when I sell as a speculative investor, even if not registerered for gst?
- I have heard developers can delay completion of earthworks etc, so as to delay registration of allotments beyond period of contract. This then renders contract void, and allows developer to resell at a higher price. Happens during hot markets. Has anyone been caught out like this?
- Are there any other gotchas one should be aware of when buying lots before completion of earthworks and registration? i.e. In Qld, I understand the dept of natural resources has to sign off on the development's plans before registration is granted. Does this potentially complicate things for the buyer under contract?
- Does the developer have to grade a flat house pad to build the dwelling on?
- Is it common for plans with DA approval to be adjusted during development, and thus change the shape, size, height, and other details of the allotment or easements?
- Does anyone know how lenient Brisbane City Council are with applications for relaxation of easement restrictions? What might be the cost associated with these applications to council?
- What is the best way for a buyer to protect themselves from a change in configuration or size of allotment.
- Is it a given that the developer would have connected services such as water, telephone, electricity, gas and sewerage?
- If I on sell without development, is the original covenant applicable to each subsequent buyer?
dwyerfam said:
Hi Danny,
I am not sure what you mean when you say 'developed'...are you saying when the land subdivision is completed, or when a house has been constructed on it ?
As far as I am concerned, I am definitely not buying off the plan.
I am entering into a contract to purchase with certain conditions in place that need to be satisfied before I can settle on the land.
The aim is to construct dwellings on the blocks, but I can't do this till titles have been issued.
Its very common in WA atm to enter into contracts to purchase land well in advance of titles being issued, as the demand is greater than the ability of the developers to physically create the titled land.
Some very interesting points you raised there tfb...:
Here's some concerns I have about buying pre lot registration.
- Is GST usually included in the marketed purchase price of the land? Do I have to charge gst when I sell as a speculative investor, even if not registerered for gst?
I would say yes, gst included in the contract price..the clause in my contract that refers to this states " The vendor agrees to sell the said land under the margin scheme and agrees that any GST the vendor is liable to pay on the supply of the property to the purchaser under this contract shall be calculated under division 75 of a new tax system ( goods and services tax) 1999 (the margin scheme)"
My understanding is that GST is not levied on residential land but is on commercial land, so you would not include it on a subsequent contract if you resold the land.
We settled on the land and no gst was added to the contract price.
- I have heard developers can delay completion of earthworks etc, so as to delay registration of allotments beyond period of contract. This then renders contract void, and allows developer to resell at a higher price. Happens during hot markets. Has anyone been caught out like this?
Could have applied in our case I guess. I would think that a developer would lose credibility if they kept doing this.
I am sure that purchasers must be protected under the law from this scenario.
The clause we added was that the contract would come to an end at the instigation of the purchaser, if the developer did not provide the clear titled blocks by a certain date, which was 12 months from the contract date.
At that stage, all we had was a verbal indication of when the titles would be due.
- Are there any other gotchas one should be aware of when buying lots before completion of earthworks and registration? i.e. In Qld, I understand the dept of natural resources has to sign off on the development's plans before registration is granted. Does this potentially complicate things for the buyer under contract?
Its no different elsewhere as far as I am aware....the applicable govt dept has to sign off on all the conditions they set when they gave initial planning approval.
Once they have signed off that all conditions are met ( which can include local council conditions as well) then the subdivision can be registered and titles issued.
- Does the developer have to grade a flat house pad to build the dwelling on?
I do not believe so. This forms part of the earthworks that the builder normally carries out.
If the land is undulating, then you could not expect the developer to choose where on the block the house is to be located.
However, if the land is urban then I would think that the developer is obliged to grade the blocks such that they do not create any retaining problems especially at the boundries of the blocks.
- Is it common for plans with DA approval to be adjusted during development, and thus change the shape, size, height, and other details of the allotment or easements?
I would think not. If the development deviates from the DA conditions, then a variation or new DA would have to be lodged.
Otherwise final approval and title issue would not be able to take place.
Sometimes if a development is release and 'expressions of interest' sought from purchasers for the end product, then it is possible for the final lots to be different from what was originally proposed, but this would be highlighted in a clause in the 'expression of interest' contract.
This may happen when the subdivision is released prior to final DA being approved.
A developer may do this to secure some presales and get the marketing machine going, as it may be a condition of finance approval that presales are required.
- Does anyone know how lenient Brisbane City Council are with applications for relaxation of easement restrictions? What might be the cost associated with these applications to council?
Pass
- What is the best way for a buyer to protect themselves from a change in configuration or size of allotment.
Add an 'out' clause that if the final lot is different in size/configuration from what was originally offered, tehn the buyer reserves the right to terminate the contract without penalty and with a full refund of any deposit.
- Is it a given that the developer would have connected services such as water, telephone, electricity, gas and sewerage?
For any urban block, I would think 'yes', but this would be clarified when you enter into a contract to buy the allotment.
It would be a condition of the DA. I am sure that a query to the relevant govt dept would clarify this.
- If I on sell without development, is the original covenant applicable to each subsequent buyer?
Yes, any restrictive covenant can only be removed by the developer.
kp
great responses KPH. I have been talking to local bank loans managers and conveyancing solicitors today to more accurately predict the value of these lots...the conveyancing solicitor was an excellent resource as she also lives in the area and seemed quite passionate about property....
I am noticing more and more in SE Qld 'expressions of interest' on small subdividable acreages. Seems sensible to me as it allows developers to more efficiently match supply to demand.
KPH, can I ask when buying off the plan, what vehicle you use to buy. If speculating short term with a speccy home, do you purchase with a company, so as to claim back land and house GST, and minimize CGT to 30% under 12 months?
I am noticing more and more in SE Qld 'expressions of interest' on small subdividable acreages. Seems sensible to me as it allows developers to more efficiently match supply to demand.
KPH, can I ask when buying off the plan, what vehicle you use to buy. If speculating short term with a speccy home, do you purchase with a company, so as to claim back land and house GST, and minimize CGT to 30% under 12 months?
heading into dangerous territory there... read the bantacs brochure called "how not to be a developer" - really helpful stuff. if you claim back the GST you will be paying out more (unless you make a loss), but there isnt much way around it unless you build the house in a non-gst registered entity and rent it out prior to selling it. any spec home will push you above the limits for complusory GST registration. and if your personal name is GST registered it will affect your ability to flip new blocks of land etc
thanks for the resource. Will read it tonight.
Have you any recommendations Ausprop re the optimum structure to turn over projects quickly.
Have you any recommendations Ausprop re the optimum structure to turn over projects quickly.
Had a long reply to the question and then I lost it....
I know Aus buys in a Pty Ltd ( pls explain Aus )
I used a discretionary trust as it was the vehicle setup for all future ips'.
I agree that it may be better ot buy in a company if you are speculating and intend to turn it over within 12 months, but in reality, can this be achieved ?
Remember that the 12 month period commences from when the contract is accepted on the land purchase and not the commencement of the house construction.
The gain may be quarantied at a 30% rate but it will still attract the difference between your marginal rate and 30% rate once distributed as a dividend, unless you leave it in the company as an asset.
And if you decide to keep it/rent it out, etc, then you give up the potential for the CGT concession altogether.
You can still claim the GST credits if you purchase as an individual or a trust, as long as that entity is registered for GST.
The whole tax position gets very grey as it is based on your 'intention' when you initially purchased the allotment and how many you do all at once.
This can affect whether you can claim the CGT concession or if all the gain will be treated as straight income and taxed at marginal rates.
I still think purchasing through the discretionary trust allows for the most flexibility in that you can stream the profits to beneficiaries in the most tax effective manner, may qualify for the CGT concession, and if required, add a Pty Ltd as a beneficiary to quarantine tax at the 30% rate.
Its a bit of a minefield but you gotta have a go imo..
kp
I know Aus buys in a Pty Ltd ( pls explain Aus )
I used a discretionary trust as it was the vehicle setup for all future ips'.
I agree that it may be better ot buy in a company if you are speculating and intend to turn it over within 12 months, but in reality, can this be achieved ?
Remember that the 12 month period commences from when the contract is accepted on the land purchase and not the commencement of the house construction.
The gain may be quarantied at a 30% rate but it will still attract the difference between your marginal rate and 30% rate once distributed as a dividend, unless you leave it in the company as an asset.
And if you decide to keep it/rent it out, etc, then you give up the potential for the CGT concession altogether.
You can still claim the GST credits if you purchase as an individual or a trust, as long as that entity is registered for GST.
The whole tax position gets very grey as it is based on your 'intention' when you initially purchased the allotment and how many you do all at once.
This can affect whether you can claim the CGT concession or if all the gain will be treated as straight income and taxed at marginal rates.
I still think purchasing through the discretionary trust allows for the most flexibility in that you can stream the profits to beneficiaries in the most tax effective manner, may qualify for the CGT concession, and if required, add a Pty Ltd as a beneficiary to quarantine tax at the 30% rate.
Its a bit of a minefield but you gotta have a go imo..
kp
Thanks for thoughts KPH. Julia has been very generous with her publications. After having a prelim read, I can see spec homes need the right structure pre purchase.
Re selling within 12 months, the plan was to be the first of the investors to get the property back on the market. I know there are at least 7 who plan to build and live within the homes for 12 months, then flick. If I can flick before them, I won't have competition and will benefit from scarcity of supply. Plus, my favourite motto is "Near money is dear money"
Risk often increases with time.......
Re selling within 12 months, the plan was to be the first of the investors to get the property back on the market. I know there are at least 7 who plan to build and live within the homes for 12 months, then flick. If I can flick before them, I won't have competition and will benefit from scarcity of supply. Plus, my favourite motto is "Near money is dear money"
Risk often increases with time.......
....and time is one of the greatest risks when building! allow PLENTY of margin. building delays in WA at present can be really shocking.
I am generally using a trust to develop within, I did a one off in a company as I knew it would soak up a loss that I had in there anyway. typically you would distribute most of your profits fom the trust to the company anyway.
my general structure is (and I havent had any fancy advice so it could have holes in it) develop within the trust, earmark at the outset which properties are keepers and which aren't, then distribute profits to self, spouse, company. (yes I know mixing developments and keepers in one trust is dangerous but my accountant reckons it's ok - ideally you would set them up separately but that is a whole new set of books to run and I am up at 2am doing accounts as it is). the biggest problem with this is deciding what to keep before you start claiming back your GST as often you dont know what your borrowing situation will be like or what the buyers are chasing when the development is complete. plus this on going debate about livig off equity torments me!!
I then use my own name for any flips that will not attract GST. The company is just a bucket to park excess profits in.
I am generally using a trust to develop within, I did a one off in a company as I knew it would soak up a loss that I had in there anyway. typically you would distribute most of your profits fom the trust to the company anyway.
my general structure is (and I havent had any fancy advice so it could have holes in it) develop within the trust, earmark at the outset which properties are keepers and which aren't, then distribute profits to self, spouse, company. (yes I know mixing developments and keepers in one trust is dangerous but my accountant reckons it's ok - ideally you would set them up separately but that is a whole new set of books to run and I am up at 2am doing accounts as it is). the biggest problem with this is deciding what to keep before you start claiming back your GST as often you dont know what your borrowing situation will be like or what the buyers are chasing when the development is complete. plus this on going debate about livig off equity torments me!!
I then use my own name for any flips that will not attract GST. The company is just a bucket to park excess profits in.
the biggest problem with this is deciding what to keep before you start claiming back your GST as often you dont know what your borrowing situation will be like or what the buyers are chasing when the development is complete. plus this on going debate about livig off equity torments me!!
Hi Ausprop,
How would you set it up if you were going to build new developments in sets of 2 and 3 per site and were going to keep them all?
Im about to start building the first and have 3 sites in total.
The first being in wife and i names, 2nd and third in same trust.
I am bricky and builder so should save a few bucks.
Hi Ausprop,
How would you set it up if you were going to build new developments in sets of 2 and 3 per site and were going to keep them all?
Im about to start building the first and have 3 sites in total.
The first being in wife and i names, 2nd and third in same trust.
I am bricky and builder so should save a few bucks.
