Speculators in Perth block market

[eddie]

G'day; I read where developers are trying to stop speculators from soaking up blocks in new developments in Perth.

With the cost of stamp duty when the buy or sell whichever it is; how do the speculators do it??

Do they sell before they settle? If so how do they do that??

would love to know..... anyone?

thanks all for your help

eddie

 

[kph]

Well they are essentially banking on the prospect that the market value of the block on completion at title stage, will be higher than when they contracted to buy it off the plan.
There may be a difference of 6 months or even 12 months between contracting to buy and having to settle.

This has been the case for the last 2 to 3 years in Perth ( well greater WA for that matter).

So you would get in at the stage release on a $500 deposit or $1000 deposit, and then when it come time to settle, you have onsold to the next buyer for anything between $30,000 to $70,000 more.

The two settlements occur concurrently so you do not need to raise finance to 'pay' for the block, but you still wear the stamp duty and selling costs in flipping the block to the next purchaser.

State govt collects 2x stamp duty, one for the initial contract price, and one for the new contract price.

You, the seller may nett $20,000 or $50,000 for your $500 or $1000 deposit.
Multiply this by say 5 or 10 blocks and its a healthy living..

Only works in a rising market where the demand outstrips the available supply of blocks.
Most develpers are clamping down on the process, by requiring you to build on the land before being able to onsell the property, with penalties if you do not comply.
Also, there has been quite a backlash from first homebuyers and prospective homeowners, as they get priced out of the market, and as a result the govt. and the developers are responding by using alternate methods of releasing land.

kp

 

[Tizzy]

Also, there has been quite a backlash from first homebuyers and prospective homeowners, as they get priced out of the market, and as a result the govt. and the developers are responding by using alternate methods of releasing land.

kp

What kinds of methods do you mean kph? I notice a couple of recent releases have sold to the first registered interest buyers and have not gone to ballot, is that the sort of thing?

 

[eddie]

Blocks in Perth

Thanks for that kp. Could you please expand a little on how the flip is done?

Presumably the investor adverties for a buyer and then settles with the new buyer immediately following settlement with the developer, is that right?

Sorry this seems to be dumb stuff but small issues are the blind spot in my attmepts to figure it out for myself.

cheers and thanks

 

[kph]

You are correct in that you would have another buyer lined up to buy the block off you.( otherwise its not a flip !)

So you have two contracts.
The first one with the developer with you being the buyer, and the second one with another buyer with you being the seller.

When you enter into either contract, you have to nominate a settlement agent or solicitor to handle the settlement process on your behalf.

Best for you to nominate the same settlement agent to represent you for both transactions, and they therefore receive both contracts along with your instructions that they are to to settle concurrently ( one immediately after the other)
Apart from you having to pay the stamp duty up front on the first contract, you thereafter essentially receive a cheque from the settlement agent after both settlements go through.

The settlement agent will apportion the proceeds from the final buyer, and pay the developer his/her share, take out all the other selling and settlement costs, and the balance which is your profit, goes to you.

Hope that makes sense..

Kevin

 

[Ausprop]

I am not so sure this is the right environment to start thinking about flipping blocks... first you'd have to find an estate that lets you do it, then you have to line up with the rest of Oz to get a block, then pay the stamp duty on the $200k plus piece of dirt and hope to find a buyer willing to pay enough to make the whole thing worth your while. when flipping, always make sure you have cash or finance to back you up. it all sounds good in theory but when settlement date approaches and you have a few tyre kickers thinking about your block, you gotta know you can settle! The majority of the early flippers were flippers by accident, the rest have jumped on the band wagon and now the potato is really warming up

 

[stretchy]

Pardon me for highjacing this thread a little, but I am hoping Ausprop can shed some light on the land shortage that Perth is currently experiencing. Its the real reason why block prices are shooting to the moon, and I'm interested to hear an insiders version of the events, rather than what I read in the papers.

Government blames developers, developers blame the government. Its not like we have a shortage of land ala Sydney so it must be regulatory in nature.

I read an interesting article in the NYTimes a few months ago - the general gist was that land appreciation in the last 50 years or so has been caused mostly by planning restrictions reducing supply more than anything else. Interesting theory...

 

[AUSPROP.]

Stretchy we are no Peet & Co so am unable to comment at that level, however from the subdivisions we are involved in I can confirm that council approvals and getting titles is a huge headache and a big delay. With stock walking out the door I can't see developers not wanting to sell = the problem is more with regulatory approval. In the current environment, huge demand and an inabilty to supply through (a) regulatory problems and (b) lack of resources to complete the subdivisions is IMO the reason behind the spiralling prices. Theoretically in time this demand should be able to be quenched.

Then there are examples also of places like Broome where native title is restricting supply, or Karratha where the market was caught on the hop and the government had to step in.

 

[stretchy]

I cant help but think it benefits the developers to slowly trickle the supply give the current maket. If prices are rising like crazy, it makes sense to parcel out blocks 20/30 at a time and let the rising tide lift profit margins. No doubt the government is not helping, but I can see a bit of good old fashioned profiteering here as well. Perhaps thats the way developers always release land, but if they were so critical of regulations, surely they can help by getting land to the market quickly..