I noticed in last weekend’s newspapers that Deposit Bond applications may be registered and recorded on the same day as they are issued and developers, builders, solicitors, financiers, bankers etc., may search and note if any other application has been submitted.
The reason being that many issuers of bonds are now only permitting one bond per applicant to be in existence at any time unless the applicant can satisfy the bond issuer that they can later complete the sale when required.
The purpose of deposit bonds was to allow a purchase to be secured for a nominal fee and the purchaser not to find cash or borrowings against equity to provide the 10% often required as deposit.
A scheme promoted by a number of organisations was to sell the concept of purchasing many properties, often off the plan and secure them with deposit bonds for 0.1% of the sale price of the property. The properties would then increase in value with inflation and the purchasers would sell and cash in on the Capital Gain. Instant millionaires.
Now that the market has gone soft, this scheme is no longer working. Even the Governor of the Reserve Bank has expressed reservations with the technique and has indicated that some investors now may be in trouble. And they are.
One investor was reported in the media to have invested $3,000 in bonds, (1% of deposit value) and secured $3M of property. They were told they would be millionaires in 18 months. In my thinking, they were either stupid or greedy or both.
This also says as much for those insurance companies who issued the bonds. The reputable companies required as stringent an application for the bond as one would expect for the total loan and rightly so.
And what of the vendor companies urging this type of investment?
I will continue to use deposit bonds as a means of securing a property with a 10% or whatever deposit. I will always ensure that I can continue to settle at the appropriate time without relying on an increase in capital gain to survive.
Regards
Ross
The reason being that many issuers of bonds are now only permitting one bond per applicant to be in existence at any time unless the applicant can satisfy the bond issuer that they can later complete the sale when required.
The purpose of deposit bonds was to allow a purchase to be secured for a nominal fee and the purchaser not to find cash or borrowings against equity to provide the 10% often required as deposit.
A scheme promoted by a number of organisations was to sell the concept of purchasing many properties, often off the plan and secure them with deposit bonds for 0.1% of the sale price of the property. The properties would then increase in value with inflation and the purchasers would sell and cash in on the Capital Gain. Instant millionaires.
Now that the market has gone soft, this scheme is no longer working. Even the Governor of the Reserve Bank has expressed reservations with the technique and has indicated that some investors now may be in trouble. And they are.
One investor was reported in the media to have invested $3,000 in bonds, (1% of deposit value) and secured $3M of property. They were told they would be millionaires in 18 months. In my thinking, they were either stupid or greedy or both.
This also says as much for those insurance companies who issued the bonds. The reputable companies required as stringent an application for the bond as one would expect for the total loan and rightly so.
And what of the vendor companies urging this type of investment?
I will continue to use deposit bonds as a means of securing a property with a 10% or whatever deposit. I will always ensure that I can continue to settle at the appropriate time without relying on an increase in capital gain to survive.
Regards
Ross
