Land Title Delay - Some Insight Please

Discussion in 'What to buy' started by Millenial Falcon, 29th Mar, 2022.

Join Australia's most dynamic and respected property investment community
  1. Millenial Falcon

    Millenial Falcon New Member

    Joined:
    29th Mar, 2022
    Posts:
    4
    Location:
    Victoria
    Hey All,

    First time poster. I usually lurk the Whirlpool forums and recently came across Property Chat.

    Partner and I purchased block of land (first home) in Melb North (Donnybrook) August last year, 350 sqm for $300k. Title was supposed to be in 12 months, so August 2022.

    Titling has since been delayed to Q2 2023, up to 9 months delays. We knew this was a risk and expected it. Didn't mind since we are taking the time to save up for the deposit while living at home. On track to place $180k down upon titling, currently have $100k including the $30k land deposit.

    We were going to sign a building contract (standard single storey, 4 – 4 – 2 layout) with 24 month price lock then, but opted to wait. In two months, the price of the floorplan (porter davis) went from $210k, to $250k. Essentially, waiting to sign a building contract these days means tens of thousands in price increases. We looked around with other builders (simmonds, metricon, burbank) and it was the same across the board. Price hikes were insane due to supply issues, lack of trades, etc. This issue will persist for some time we are told. My work also has exposure to the building industry and know this is likely to persist for 12 months minimum.

    The alternative is to sign a building contract soon, and every month of delays in titling incurrs a monthly fee, payable to the builder, of $1,000. So if titling is delayed by a FURTHER 8 – 12 months, this can increase our costs by $8 – 12k. However, if we wait to sign a building contract until land titles (anywhere from 12 months from today, to 24 months to today), the floorplan will undoubtedly increase by MUCH more... unless a comet hits Australia.

    Hence, given the above, we are inclined to lock in the price with a builder today (carlisle homes), risk the titling being delayed further, and forking out up to $10k in fees to the builder, than risk the floorplan increasing by much more if we wait. The delay fees (damages, they call it) are indeed much less than the quarterly price increases we have observed so its no big deal.

    The alternative is we onsell the land (no experience with this), don't make a profit, and buy something already built today that suits our needs. We have this weekend attended 5 auctions for properties similar to what we look to build in the North and the prices are nothing short of ******: $780k for a 400sqm, 4-4-2. We could afford this given our broker advises we can borrow up to $1.2m ($185k combined income), but we don't want to stretch things that far. The goal was to live in this house for 1 - 2 years, and build another one in that time then move on, continue to invest, etc.

    As it stands, we look to have the above built (land and build combined) for $580k when its all said and done. Even with extensive delays and fees payable to the builder, we would still get it built sub $600k within the next two years which is incredible given similar is going for $780k TODAY already built.

    Hence, we are inclined to take the punt and lock in the building contract with Carlisle. What are we missing? Anything else we should be considering?

    Also, we haven't received the HIA contract as yet, but is it possible to cancel the building contract in future and forgoe the deposit? Carlisle only asking for $5k instead of $20k, so if the maket tanks (unlikely, but who knows), we can simply write off the $5k and find a bargain.

    Appreciate any insights and apologies for the essay. Cheers.
     
  2. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,792
    Location:
    Perth, WA
    Assuming the building prices will definitely be going up a lot seems like a pretty big piece of speculation.
     
  3. Millenial Falcon

    Millenial Falcon New Member

    Joined:
    29th Mar, 2022
    Posts:
    4
    Location:
    Victoria
    Interesting. Can you expand on this?

    I have kept track of price lists from a few volume builders and all floorplans have had minimum $30k price increase over the past 4 months alone.

    I also know the timber and plasterboard shortage is ongoing and unlikely to be resolved anytime soon.
     
  4. Investor1111

    Investor1111 Well-Known Member

    Joined:
    19th Aug, 2021
    Posts:
    287
    Location:
    Darwin
    Looking at my build contract, builder has the right to increase the contract price by 3% every 120 days due to any delays in development / land title not being available. If your contract was written up in a similar way, you wouldnt of been better off by signing build contract by the sounds.

    Good news that regardless of the landscape of the construction industry currently, your going to have big uplift upon completion as you bought through the capital growth period during Covid. From what i can read and talking to my builder, price of buidling is only getting more expensive, with the price of materials / labour, problems with supply chain issues not looking to be resolved until 2023 at a minimum.

    Goodluck mate, you seem to be in a decent position whatever you decide to do.
     
    qak likes this.
  5. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,792
    Location:
    Perth, WA
    Well it sounds like the timeframe you're talking about is something like Q2 2023 to a further 12 months after that potentially.

    Honestly who knows what the building industry will be like in more than a year's time. Plus I also have concerns about what they can raise on you even if you were to sign now - more than you think possibly?
     
  6. Millenial Falcon

    Millenial Falcon New Member

    Joined:
    29th Mar, 2022
    Posts:
    4
    Location:
    Victoria
    As a brief update, we decided not to go ahead with the build contract with Carlisle and walked away from $2,000.

    Given the current risks associated with builders failing over the next 12 months, we felt this was the best decision. So we will just sit and wait. We would rather pay an extra $50k in the future knowing the build will be completed rather than risk going with a builder who will go bust midway through the build.

    If prices go up, they go up. On that note, the Carlisle floorplan we had settled on has since had a $15,000 base price increase from what we can see online.

    Interesting times ahead.
     
    qak likes this.
  7. sash

    sash Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    15,606
    Location:
    Sydney
    You will probably pay another 100k.....leaving the 2k in place...would have been hte better option. 15k in the scheme of things is peanuts.
     
    Investor1111 likes this.
  8. Millenial Falcon

    Millenial Falcon New Member

    Joined:
    29th Mar, 2022
    Posts:
    4
    Location:
    Victoria
    Issue is the price lock would be void by the time the land titles in Q2 2023 so no point in signing now as we will be up for an additional $100k either way.

    However, in the past month the land has since moved from an overgrown farm patch to being levelled out and we can see some infrastructure ready to be built so hopefully it titles on time.

    From our view best thing to do would be to wait another 3 - 4 months, gauge whether the land development progresses further then sign a further price lock contract then but again the risk is the builder will go under in the proceeding 6 months.

    This whole process is fraught with peril.
     

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia