Off the Plan Purchase Question

Hi guys need some advice...
Friends put down a deposit for an off the plan unit in a development of 32 consisting of units and townhouses. They were told they had to pay progress payments... I thought with OTP developments it was deposit and balance at the end? I would appreciate hearing of anyone else's experience with this.
 
Hi guys need some advice...
Friends put down a deposit for an off the plan unit in a development of 32 consisting of units and townhouses. They were told they had to pay progress payments... I thought with OTP developments it was deposit and balance at the end? I would appreciate hearing of anyone else's experience with this.

This is a new phenomenon called 'split contracts' where it is an OTP development but the purchaser pays in instalments instead. Banks don't like it.
 
Thanks Aaron

Thanks for that insight, when they told me about it I thought it sounded dodgy. I thought that if you were a big developer with a history you wouldn't need to be getting money off purchases to fund the build.
 
Thanks for that insight, when they told me about it I thought it sounded dodgy. I thought that if you were a big developer with a history you wouldn't need to be getting money off purchases to fund the build.

Banks don't like it because of the counter party risk - they are not just at risk with the borrower (which they are happy with) - they are at risk with the other people in the same development. What if the builder (who is building all these units together) goes bust? What is the other borrowers go bust? Basically the developer is trying to have their cake and eat it too - get paid in stages for the construction, and not have to ask their bank for (expensive) development funding and pay interest.
 
If they are being asked for progress payments, it may be that they have in fact signed some sort of "building" contract. Its always a bit more difficult, when responding to posts about what "friends" have done.
 
OTP Ctd.

Sorry Peter, but I only get told in dribs and drabs so, yes it is difficult. I saw them today and they are signing some sort of contract next week. I don't know if that is normal for an OTP purchase or not.
 
Be very surprised if the banks will come to the party on this arrangement.

I'd be more than very surprised... I'd be utterly amazed. If they ever did come to the party, they'd need to get securitised investors, APRA , Ratings Agencies and Mortgage Insurers on board. Expect LVR's below 80% or even lower. No way this stuff will get securitised in the next few years, or even for decades possibly, or ever- more likely. Not without a miracle anyway. Might, with a huge capital M I G H T have had a chance at sub 80% in the free for all securitisation explosion of the 90's and early noughties, but the concept is very unlikely to ever get lender or regulatory support now.
 
Banks don't like it because of the counter party risk - they are not just at risk with the borrower (which they are happy with) - they are at risk with the other people in the same development. What if the builder (who is building all these units together) goes bust? What is the other borrowers go bust? Basically the developer is trying to have their cake and eat it too - get paid in stages for the construction, and not have to ask their bank for (expensive) development funding and pay interest.

Sounds like a great deal for a developer. Are you aware of any banks that are willing to make the progress payments for these loans?
 
They went to a conveyancer instead who didn't point it out as being unusual or anything. I thought the whole situation odd and that's why I posted the question, to gain some insight and hopefully learn something, which I have.
 
split contracts

hi guys, I am doing something similar now,

I took my idea to a lawyer and Just spent $$$ on the legals.

he said some builders are doing wholesale - they get 100-150k off a client to use for start up - client becomes a part of the development pty (SPV). the SPV buys land, gets DA, then builds and hands each client(director) their property. The property is valued and re-draw 80% to pay back the primary loan, and themselves.

basically the builder is the PM and keeps himself busy with work - no tendering required.
Hes flat out and its very popular. MAINZ.

investors love it - no stamp duty and no gst, they own a house with 20% equity and get their cash back too.

Too hard to do as a developer - no money in it.
Im taking larger deposits and keeping some as trust acc deposit, rest for me to spend. They get a great return.
 
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