10% Deposit Payment security and loan for buying Australian properties
July 6, 2015
In Australia, why the sales of new homes are the off-the-plan?
Why should pay 10% deposit when signing the sales contracts?
Does it have guarantee to buy off-the-plan properties? Why there are very few new existing properties on the market?
Do overseas get loans from Australia banks?
The following paragraphs will explain those questions above, please read carefully.
First of all, we would like to talk about the real estate transaction problem. Australian real estate transaction process is simple and clear, trading process is safe and reliable. The buyer chose a property from a real estate agent, and then pays a $2000 to $5000 for the expression of interest which can be refunded fully. The buyer need to find an Australian licensed solicitor or local solicitor, the transaction is done with both the developer’s solicitor and buyer’s solicitor. Developer’s solicitor will send the sale contract to the buyer’s solicitor, the buyer’s solicitor will read through the contract and do something to protect the benefits of the buyer, and then explain the content of the contract to the buyer. Upon the right content, the buyer will sign the contract, and deliver the 10% deposit payment. If it is off-the-plan property, the loans and the final payment is submitted to prepare before settlement, buyer’s solicitor will inform buyer the specific settlement time, and help the buyer with the property formalities.
Secondly, we would like to talk about the 10% deposit payment. Buying off-the-plan properties in Australia, the initial payment is generally 10% of the selling price, this 10% is not submitted to the developer, it is deposited in the trust account for safekeeping by the solicitor, and still have the interest, lawyer will put it in a trust account of any bank in Australia, and submit it to the developer at the settlement, during this period, the interest is usually divided equally to the buyer and the developer. So there is no situation that developers collect money to build properties.
So why should be 10% deposit, how about 5%? Why there are off-the-plan properties in Australia market and very few new existing properties?
The main reason is from banks. In Australia, developer usually purchases a development site by its own money, and construction loan should be applied from banks. I do know that in China, the money for construction is paid in advanced by the construction organization. Developers in Australia apply loans from the bank, in order to guarantee the bank’s risk control, so the bank will require developers to do pre-sale, when the developer’s properties has been successfully sold around 70%, the bank thinks that they hardly bear any risk, because most of the properties have been sold, then the bank will give developers construction loan to build. 10% initial payment is required from the bank; developer’s solicitor should provide all the 10% documents to the bank, the bank will agree to make construction loan.
Why banks require 10%, how about 5%?
Usually the answer is no, the bank thinks that less than 10%, buyers’ possibility of going back gets bigger. After signing the contract, the 10% will not be refunded if buyer gets back on his words, unless the property completed, the room type or area does not match those in the contract.
Generally, floating area is not larger than 5% of the actual total area, if the buyer pays less than 10%, and decide not to go ahead and give up the deposit, thus the risk will be passed on to the bank, so the bank require a 10% deposit payment is in order to avoid this risk. Thus it can be seen, when the building is completed, the units with good room type have already been sold as off-the-plan, and the remaining units must be very few.
Thirdly, we are going to talk about the loans. Overseas can apply loans in Australia and it is very easy to get. Overseas buyers need to submit a letter of certificate showing your position, working years, annual salary, and signed and sealed by your director. The bank is likely to call your director to verify that information. You have to fill out the application form and other documents.
Why a letter of certificate can make Australia banks lend money to buyers? First of all, when you apply for a loan, the bank will evaluate the property you would like to buy; Sydney’s assessment of the property value is usually high. Secondly, before you pay off the bank loan, your property is mortgaged to the bank, house property ownership certificate is in the bank, and so if you are unable to repay the loan for quite some time, the bank will take your property for auction. With this record, it will be difficult for you to apply loan from banks in future.