If you are new to buying property, or just new to buying off-the-plan property, you may find some of the terms used confusing. We have put together a quick guide to decoding some of the jargon to help you understand what’s what when it comes to buying a new house or apartment in Brisbane or on the Gold Coast.
Some buyers who paid their deposit look to exit the property development prior to completion before they are committed to settling. One of the key advantages of this is the purchaser secures a property in today’s price but settles in a few years with an anticipated profit. The buyer may also secure a property at a discounted price. In addition, the property, when completed, could be worth more than the original purchase price. Purchasers can also potentially make alternations to plans prior to construction and can choose from a selection of interior finishes. Prices are set at current market rates with incentives often offered to entice buyers. This adds to the capital gain potential, but price rises are never a sure thing, as we have seen in past years.
You would have signed a contract when you brought the property and whether or not you can resell it before settlement is subject to vendor approval and the written clauses in your contract.
You could cancel your contract before settlement, but this is dependent on the status of the contract. If you are still in the cooling off period of your contract and it is conditional, then you should not encounter complications when terminating it. The cooling-off period is available in most states but the timeline differs in terms of pre-sale negotiations.
The specific terms surrounding the cancellation of a contract is subject to what was outlined in the terms of the agreement which you signed off on.
Foreign investors (people who are not Australian citizens, NZ citizens or Australian permanent residents) who purchase property in Queensland pay a new seven percent transfer duty surcharge as of July 1st 2018.
This means if you now buy a property for $600,000, where stamp duty was formerly a little over $20,000, an additional seven per cent will add an extra $42,000.
The Palaszczuk Labor Government introduced the tax on foreign purchases of houses and apartments in its budget legislation last October. The new transfer duty is anticipated to raise about $90 million over the next four years.
In Queensland, the stamp duty doesn’t only apply if you live overseas and are buying here. You could be a foreign national who’s lived here for many years investing and still wear the extra levy.
Property developers and vendors can apply for an exemption certificate to sell new dwellings in a specified development to foreign persons, without each foreign person purchaser being required to seek their own foreign investment approval (similar to what has previously been known as an ‘advanced off-the-plan’ certificate). Each approval will be assessed on a case-by-case basis.
The certificate will be granted for a specified development on condition that the dwellings for sale in the development are marketed in Australia. Developers can also choose to market the development overseas if they wish.
New dwelling exemption certificates will normally exempt prospective foreign persons from individually seeking foreign investment approval to purchase interests in new dwellings up to a total of $3 million in the specified development.
If they wish to purchase further interests in new dwellings, the certificate will not cover these purchases and the foreign person will individually need to seek foreign investment approval.
Foreign persons will then need to apply and gain approval for a foreign investment by the Foreign Investment Review Board (FIRB) under Australia’s foreign investment framework before purchasing residential real estate in this country.
The Foreign Investment Review Board is a non-statutory body established to advise the Treasurer and the Government on Australia’s Foreign Investment Policy and its administration about proposed investments in Australia.
It is important foreign investors understand and comply with the framework or a breach may result in civil or criminal action.
For more information visit: www.firb.gov.au
A tenant is an occupant of a property who is required to pay rent to the property owner.
This is agreed upon by a contract between the potential tenant and the property owner. If a contract is not used or is not appropriately signed, the tenant is instead considered a squatter.
Depreciation is the rate at which an asset reduces in value over a specific period. While it is often used in the context of property, it can apply to other assets like cars and furnishings to a lesser extent.
If a property decreases in value, then the taxation will be lower. The value is calculated by two different factors: Depreciation on Plants and Equipment, and Depreciation on Building Allowance.
Plants and Equipment refers to appliances and décor that belongs to the property itself (carpets and blinds).
Building Allowance refers to the construction costs of the materials that the house consists of.
This can be claimed against your taxable income, decreasing the amount paid on tax. Many evaluators can also be claimed on tax, making it a wise decision to keep track of the value of your property.
Flipping generally refers to purchasing a property, before renovating and reselling.
Some flippers work as a group to put a large deposit on the property, before using combined talents to renovate the property for an affluent market.
This strategy is often used on disaster-stricken (but not disaster-prone) properties, as damaged properties are easy to afford, but take a skilled renovation team to repair to a profitable price.
However, it is important to remember that location is more important than building status and can greatly determine the price of a home.
A body corporate (or owner’s corporation) is a collective of landlords in a multi-dwelling that manage the communal areas, and the rules of their respective properties to ensure the safety and administration of the tenants.
Often they come with a regular membership fee to cover maintenance costs, and members are encouraged to attend meetings in order to discuss and vote on important issues. While this can benefit both tenants and landlords, excessive fees can sometimes deter landlords.
The body corporate is a similar structure to a parliament, with a chairperson instead of speaker, a committee instead of senate, and common property instead of public service sector. However, votes are distributed based on amount of properties, meaning that someone who owns three lots will have three votes.
An important thing to remember is that a body corporate operates as a hierarchy where each level has a different role, but cannot act upon anyone whom they are not in a contract with (The body corporate has little influence over tenants unless a contract has been negotiated between both parties).
Body Corporate: A parliamentary-like system comprising of property owners.
Property Owners: Landlords with the ability to evict and enforce rules for tenants.
Tenants: Residents who pay rent, but must follow the rules of their contract.
Lot owners are automatically added to the body corporate as a legal requirement to the overall multi-dwelling.
An owner-occupier both owns and resides at the property. This can be used to refer to someone who has purchased their own residence.
Capital Gains are the price increase between the purchase of a property and the sale of it.
It does not include any profits regarding the property throughout time of ownership; it only refers to the price increase from time of purchase, to time of sale.
The Capital Gains Tax (abbreviated to CGT) is the percentage paid on a capital gain or the profit made from the resale of a property.
Capital losses can be used to lower the capital gains in the same financial year, and gains can also be lowered if the previous year resulted in an overall capital loss.
CGT can be avoided by using the property as a main residence, or through the six year rule.
All properties purchased pre-1985 are exempt from the CGT
Sinking funds are established by body corporates to save up money for repairs to communal areas.
They can act as reserves or a levy, meaning that property owners will not be forced to make a massive payment in order to fix something in the communal space. They may be used in times of restricted flooding (ie. a water pipe in a communal area burst, flooding only that area), for example.
Inflation is used to describe an increase in overall prices in a good or service, but can impact a whole economy.
High property prices often result when not enough houses are being built, or when average income is increasing. Other factors like location and demographics don’t affect the whole state, but are important when purchasing property.
High levels of inflation can decrease the value of a currency, causing the overall price of goods to rise and deterring the population from spending on luxuries or higher-end properties.
Inflation can often be caused due to over-supply of currency, under-supply of goods, high wages, or lack of competition. Banks commonly try to limit inflation levels to encourage investment without devaluing their currency, but supply-and-demand can sometimes have a drastic impact on inflation.
The Consumer Price Index (CPI) is a term used to calculate the costs of various goods and services in a hypothetical basket, ranging from meat to healthcare.
Commonly seen as a way to determine the cost-of-living, the CPI comes in two forms, reflecting rural communities, and metropolitan communities. While the metropolitan CPI is the standard (most of the population is urban or suburban), both are important to analysing the living standards of respective groups, especially rural communities.
The CPI is most efficient when used with other tools, as it does not account for luxuries, property values, or demographics.
Stamp Duty (also called transfer duty) is a tax placed by the Queensland Government on the transfer of property.
The duty amount is determined by the market value of the property, as well as whether the purchaser is an Australian national or not. International buyers are required to pay 3 percent extra.
The National Australian Built Environment Rating System (NABERS) is used to calculate the efficiency and environment rating of the property.
NABERS uses a six-star system, and is important for calculating utility bills prior to purchasing a property. A one-star would potentially have wasteful appliances, and only have two windows that can be opened, while a four-star would have conservative appliances, and an internal ventilation system to allow cross-breeze from the window.
The NABERS company has hints and tips on how to improve your environmental impact, whether you are a tenant or a property owner.
A Strata Title is commonly used in vertical multi-dwellings like high-rises and flats, and defines the boundaries of the units within.
These often have contained private living spaces that front onto corridors with elevators or stairs, and the units are often part of a single building, each with a balcony as opposed to a garden.
Strata titles also include a body corporate that property owners are added to upon purchase, and must maintain the common areas.
‘Strata’ refers to high-density residential living in a vertical form, such as high-rise apartments or flats, generally where individually-owned floor plans are stacked vertically upon each other.
Be wary not to confuse with group title.
Similar to Strata Title, group title is for horizontal group-dwellings like villas, with communal outdoor space.
These properties generally have a courtyard style, with open parking and personal gardens. The units are often separated into sectioned blocks (e.g 1-4, 4-8 etc), and many are multi-storey due to the small individual boundaries.
Group titles also include a body corporate that property owners are added to upon purchase, and must maintain the common areas.
Group-dwellings are high-density residential, often in a horizontal form like villas or townhouses, where floor plans are placed beside each other.
Be wary not to confuse with strata title.
Positive Cash Flow is when your income is higher than expenses.
It does not mean making a profit, as unaccounted expenses could still result in you making a loss.
LVR means Loan to Value Ratio, a term used by mortgage-brokers when calculating your eligibility for a mortgage.
The LVR is used to assess the risk a borrower would default on the loan, and is vital to safeguard both parties in the mortgage arrangement. It is used along with income and credit checks to ensure the loan will be repaid.
It is often a percentage, comparing the mortgage amount to the value of the property (e.g if the mortgage is 300,000 and the property value is 600,000, the LVR would be 50%). The higher the percentile, the riskier the loan, and the less likely your application would be accepted.
If your deposit is a high percentage of the value, the LVR would be lower and therefore be more likely to be accepted. However, most first-home buyers would find it difficult to pay a 50 per cent deposit or such. Banks offer long-term mortgages, as well as alternative loans to decrease the LVR.
Beware, both usually have interest, and can drastically affect your credit rating. So it can often be wiser to just save up money until the required deposit amount is paid, and live within your means.
Borrowing against Property:
Borrowing against property often carries a danger based on the value of the property.
A high value property is easier to borrow against, and requires restraint to avoid over-borrowing. Lower value properties require more personal funding, due to their increased risk and LVR.
A potential investment property is $500,000 and requires a $50,000 deposit.
Would you borrow $100,000 against a $300,000 property, or pay more of the deposit by borrowing $200,000 against an $850,000 property?
In the case of borrowing against a property to purchase a property, you would always be in the same amount of debt, so it depends on interest and leniency towards LVR as to the mortgage’s quality and ease of management.
When you purchase a new property a Sunset Clause may be outlined in the contract. A Sunset Clause will require the developer to complete the project by a set date or within a specific timeframe.
If the development you purchased off-the-plan is incomplete by the sunset clause date of expiry, then the contract is deemed void and settlement won’t take place. In the event this takes place, then your deposit will be refunded and you are legally entitled to walk away from the project.
You should fully understand all the obligations set out in the Sunset Clause. For instance, a Sunset Clause can lead to a contract being terminated before the settlement date.
In New South Wales (NSW) the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW) came into force as the new Division 10 section 66ZL of the Conveyancing Act 1919 (NSW) in November 2015. The NSW Government ensured developers who wanted to rescind a contract must first seek consent from the purchaser to go through with the termination. However, each different state and territory treats sunset clauses differently.
A residential property in NSW by law cannot be put on the market until a contract of sale has been drawn up. The contract of sale includes the terms and conditions of the sale and includes valuable information about the land. It should be explained to you by your solicitor or licensed conveyancer.
Your rights depend, in large part, on what is outlined in the contract of sale. Some things a contract of sale must include are:
If you negotiated a deal and are happy with the conditions on the contract of sale, then sign the contract documents.
Stamp duty refers to the tax added to the overall amount you pay when purchasing a new property. This tax can be paid at a flat rate or based on the value of the transaction.
One of the well-known and biggest reasons for buying an off-the-plan property is the potential for substantial stamp duty savings. Stamp duty is payable on the value of the land and building as at the date of the contract of sale. Therefore, if construction or refurbishment is yet to be commenced, a reduced amount of stamp duty is payable as compared with buying an existing or refurbished building. In Victoria there are substantial stamp duty savings to be made compared to other states. Conditions and amounts vary throughout Australia.
Off-the-plan is a term which describes buying a property which has not been built yet. In other words, you make a decision to purchase an apartment based on the documentation available prior to construction such as the floor plans.
Off-the-plan includes all financial and legal documentation which explains the contractual commitments, architectural plans and can include exterior/interior computer generated images.
You’ve found the perfect property and are ready to move in. Firstly, you will need to follow processes which surround the purchase of a property.
If the apartment sits within your budget, then it’s time to make an offer! There are two types of offers – conditional and unconditional. If your offer is accepted, then you will exchange contracts with the seller. This is usually when the deposit is paid. If you are buying privately, you are usually required to pay a holding deposit (which can be anywhere between $2000 and 10 per cent of the purchase price). The deposit will be refunded in full if the sale should fall through. A cooling off period applies in most Australian states except for Victoria.
The date of settlement is when you will take legal ownership of the property. The balance of the purchase price should be paid when you take possession of the property. The length of the settlement period is one of the clauses in the contract. Settlement is usually 6 weeks (30 days in Queensland). However, the vendor can negotiate the settlement period with the buyer.
The Australian method of purchasing a property can differ from overseas countries which uses an instalment process.
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