Banks change rules on split contracts

03 Jul 2014| Posted by: Geoff Baldwin

Recent bank changes to lending criteria for Survey Strata house and land contracts will result in dire consequences for many developers and is likely to kill many current off the plan projects according to RE/MAX WA managing director and long standing property investment specialist, Geoff Baldwin. “Whereas strata titled projects are required to be totally completed before the deal is settled, survey strata developments allow settlement on the land content and then graduated payments until completion, much the same as a conventional house and land package”, Mr Baldwin explained. “These new changes will now require developers of survey strata projects to totally complete the project before any funds are paid over by purchasers resulting in significant extra holding costs to the developer, additional stamp duty to the buyer and inevitably, a higher purchase price. “As an example, we are currently mid-way through selling a villa development in Perth's southern suburbs with most of the purchasers having committed to graduated payments and the entire pricing structured around that model so all parties are now faced with the problems resulting from these sudden changes. “The banks are justifying these changes arguing that, should a developer not complete a project the land will be difficult to sell because it may be isolated from the road or without services, etc however this seems like another decision made by bureaucrats who have little understanding of the repercussions or without consideration for alternatives. “One solution would be for the developer to demonstrate their capacity to complete the project without the benefit of graduated settlements ensuring that no buyer was at risk and that the bank's funds were secure. “Another consideration could be for the developer to be required to hold funds as a security bond for the lenders. “This is another fairly radical decision made without sufficient consultation or warning and one that has the capacity to cause enormous harm to developers, the building industry and a stream of supporting trades”, Mr Baldwin said.