Greetings from Sydney!

Hello all!

Long time reader and amazed by the wealth of free knowledge being shared by this community.
Thanks to everyone that contributed so far.

A bit about me, working with IT, still renting, waiting for my first PPOR be built (off-plan unit being built), in countdown mode to parenthood in 5 weeks time. Gross $130k/year

Some facts:
- Given that my partner will not be back in the workforce anytime soon.
- Given that my off-plan unit won't be completed in less than 12 months. Paid 10% deposit ($58k)
- We are considering buying another property in the $500k range to live in and stop paying rent and eventually transition this one into a IP and live on the new unit.

Some Questions (I did try searching on google and on this forum but with not much luck):
1. Does an off-plan property that is not settled have equity, given that the sharp price rise in Sydney I would expect some capital growth on the unit?
2. Can I access this somehow or only after is settled?
3. Can I somehow use the off-plan property as a security on the loan of the second property?
4. Or should I just assume it's a locked away money for the time being?
5. Would buying this temporary place in the future put me into a more complex situation to secure the loan for the off-plan unit when it's ready?

Not clear where to go to find help on answering this questions, a Financial Planer? a Broker? Lawyer? Bank?

Cheers,
fcz

 

Congrats on the little one.

Unfortunately until it is settled you don't own it. There have been cases where developers have deliberately delayed the build to cancel contracts and then sell the properties at higher prices due to the growth Sydney has experienced.

Only after it has settled, risks as above.

Nope

Just locked away

Yes, you have changed your circumstances if you purchase another property with another loan. Unfortunately there are some pit falls with Off The Plan purchases which is why most on this forum avoid them.

Given the above do you have a deposit for a second property? You would be best off speaking to a broker to establish your serviceability for both properties. If the answer is no to either deposit or serviceability then your hands are tied unfortunately.

 

Hi @fcz

Welcome to PC.

Congratulations on the upcoming new addition to your family!

Does an off-plan property that is not settled have equity, given that the sharp price rise in Sydney I would expect some capital growth on the unit?

Depends at what stage in the cycle you purchased this unit. What prices are comparable units or developments that started after you purchased selling at? Is it more or less than what you spent?

Can I access this somehow or only after is settled?

Only after it settles. Depends what the bank will value it at. However typically bank's tend to take contract price.

What Loan to Value Ratio are you looking at? How much more deposit from pocket will you be contributing?

Can I somehow use the off-plan property as a security on the loan of the second property?

It would have to be once its built and handed over to you. This sounds a bit like cross collateralization Better to steer clear of this (as most on PC would agree!) - this will cause a number of issues, especially when you try sell one of the properties.

Better to draw down on equity on property 1 to put toward property two.

Would buying this temporary place in the future put me into a more complex situation to secure the loan for the off-plan unit when it's ready?

Potentially!! Better to speak to a broker to run through your overall servicing before committing to a second property. Also, good to have a plan in place anyway for long term investing, so you select the lenders appropriate for where you are in your investing journey and goals.

Best of luck!

 

Welcome @fcz

1 - no
2 - there is no certainty that this property will settle (developer may invoke the sunset clause)
3 - see 2
4 - yes, can't touch this

 

Thanks everyone for the quick answers, your answers pretty much align with what I was able to conclude based on my own research.

Will most likely sit and wait then

Will try to answer the follow up questions and give a bit more of details.

We are/were aware of the pitfalls of purchasing off-plan but that was the only way to get access to the FHBG and the Stamp duty concessions on our first property that point in time and we were worried back in 2014 that continue growth would have priced us out of the market, in hindsight it was I think it was a good decision because we couldn't afford to buy the same type of property today given how fast the market moved.

Yeah my original plan was to keep renting and then after living for a while on the new place see how much equity we would have access on property 1 and put towards the second one to avoid the whole cross collateralization issues.

We do have around $80k in extra savings today, which we plan to continue to accumulate towards the property 1 to get a better LVR and potentially avoid having to pay LMI when the time to settle comes around.

The anxiety around the questions is around what to do today, just sit and wait, or roll the dice and try to buy the ~$500k property now in the meantime to avoid paying rent and be able to use this second property as a security on the loan for the first one (unclear if this can even be done and how it would affect the serviceability, will certainly get qualified advice on this before pulling the any trigger).

 

@fcz

Sounds like you bought in a rising market, so well done on that.

Are you saying you want to buy a second property (established), and live there instead?

Being able to use equity in the second property to put toward the OTP will depend on how the markets go in terms of capital gains and providing you with the equity to put toward the OTP.

 

If I was in your situation I would keep the cash and continue to save, get an 80% lend and avoid LMI (you can always leverage up later if you wish) and the potentially messy situation of not been able to get finance. The little one will change your serviceability too.

I wouldn't feel comfortable purchasing again unless I had unconditional finance on the OTP unit, I am unsure how and when this is available as due to the reasons above I never looked into them further in regards to OTP.

Good on you for doing what worked for your situation, hopefully it works out well and you get a big equity gain you can leverage off.

 

@monalisa correct, buy a second property in the meantime live there and when the OTP property is completed move there for a while so we don't loose the First Home Buyers Grant, to be honest I'm not sure if this is even legal, and if not I'm really talking about ~$28k of grant/reduced stamp duty which I assume I'll easily get back when the property is completed in capital growth so in the worst case scenario I'll just ignore the whole grant thing and pivot into another strategy leaving the OTP as a future IP when it's completed. thanks again for the help.

@Hodor thanks for the sanity check, yeah I agree it can get messy pretty quick if the market cools down in the meantime. Sunset date is August 2018 so still quite a bit in the future and with the recent legislation changes around OTP Sunset clauses done by the NSW Fairtrading I would assume it has become more difficult for the developers to just randomly invoke them without a valid reason.

 

I understand FHOG will be claimable at the time of settlement.

So if you buy another place and live there, the OTP may not end up being your first home.

 

Hey fcz, welcome aboard.
It's possible, depending on the location.
Also possible the dodgy developer will pull the plug via sunset clause.

 

I read on the forum that the sunset clause is something developers can no longer use for this purpose since November last year in NSW:

Buying_property_off_the_plan

 

There you go fcv, did you sign the contract before November last year?

 

It actually doesnt matter when the contract was signed:

"The new legislation will apply to all off the plan contracts that have not been completed - that is, contracts that are still in operation on 2 November 2015; and, also, to any off the plan contracts entered into on or after 2 November 2015.

So, for example, if a developer has sought to use a sunset clause to rescind a contract made on or after 2 November 2015, the contract would attract the protection of the new law and the developer would need to obtain a Supreme Court order to end that contract."