Off the Plan -Loss

Discussion in 'Accounting & Tax' started by virgo, 27th Apr, 2020.

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  1. virgo

    virgo Well-Known Member

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    Hi

    I have a friend who bought into the Melrose Park (near Meadowbank) off the plan apartments..she is unable to get a bank loan and is planning to "hand it back to the developer".

    She will have to forfeit the deposit ..i think around 60K?

    Question: is this loss tax deductible?

    She also mentioned she paid the stamp duty? I thought you only paid the stamp duty when the title transfers? Is this refundable or tax deductible?

    thanks!
     
  2. The Y-man

    The Y-man Moderator Staff Member

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    Ouuuuch - is that due to valuation or the whole covid saga?

    The Y-man
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    It certainly wont be tax deductible. She may incur a CGT loss however that can also be questionable as the forfeited deposit may be a surrendur of funds to cease being sued and that isnt a CGT asset.

    I believe that the duty may be capable of refund in some instances where a settlement doesnt eventuate.

    All good questions for a solicitor since she could remain liable for more than the deposit
     
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  4. Trainee

    Trainee Well-Known Member

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    Will your friend also be liable for further losses if the developer sells it at a lower price?
     
  5. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    In NSW SD is paid either just before settlement or 90 days after contracts are signed, whichever is sooner. In your friend's case, she can apply for a refund (which from experience takes a looooong time to come back.)

    As well as keeping her deposit, the developer may sue her for the difference in a lower eventual sale price to someone else + agent coms + marketing expenses. If the sales price is higher than she was paying (unlikely in this scenario) she's not entitled to the gain. She needs specific legal advice.
     
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  6. datageek

    datageek Well-Known Member

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    For others watching this thread, don't buy new. New property under-performs established. It's the easiest thing to research.

    And off-the-plan is newer than new - it doesn't even exist yet. Don't be sucked in by the glossy brochures and swayful words of the developer, project marketer, etc.
     
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  7. virgo

    virgo Well-Known Member

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    Myriad of reasons:

    1) negative gearing on another rental house eating into her cash flows...job looking vulnerable...what's the point of negative gearing when one does not have income to offset?

    Rental house in Kellyville Housing and Land package..very negatively geared ..oh dear!

    2) PPOR debt: still not paid and in late 40s ; retirement less than a decade away?

    3) she was hoping to flip the Off the Plan property to pay down PPOR debt but increasingly getting pear shape.

    A common scenario?:(


    Thanks for all your replies; esp. Propertunity remarks...i am sure my friend thought it was just handing back to developer:(
     
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  8. Trainee

    Trainee Well-Known Member

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    thats the problem right here.
     
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  9. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Only common for flippers - it's just betting by another name when it's a flip with a 2yr time horizon.
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    So valuation of the prop isn't an issue (yet)?

    There might be better ways than losing the deposit + costs (not that I have any ideas but the brains trust here might)

    The Y-man
     
  11. Car tart

    Car tart Well-Known Member

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    One of my staff bought into a nearby building with a rent guarantee of $720 pw for 12 months. This was A $700k one bedroom unit 3 years ago, I told her to buy two older 2 bedroom units, but as this was a one stop shop where they had beautiful colour brochures and champagne at the launch I couldn’t compete. Three years later her unit is worth some $480-$520k she owes $600k which is mortgaged against her PPOR and after being vacant since Christmas has been let for $420 per week which is the going rate.
    She regrets not taking my advice and sees she was fooled by the spreadsheets, future increases in values and rents based on past increases, colourful quality brochures, supposedly low holding costs and the dream that buying new is preferable to buying a 30 year old property that she would not live in.
    She has been saved by the currently low interest rates and the fact that her PPOR was paid off before she bought her 1st investment.
     
  12. MTR

    MTR Material Girl Premium Member

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    This thread is really a sign of the times, expect more of this:(
     
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  13. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Yep. With a huge leveraged effect. A small deposit down is not the limit of the loss.

    The word oversupply was being used 2-3 years ago and didnt actually go away. It was deferred and now with failed sales its back on. Lenders can be expected to pull values and even restrct some postcodes.
     
  14. Trainee

    Trainee Well-Known Member

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    Kind of surprised this didnt happen more in 2018.
     
  15. MTR

    MTR Material Girl Premium Member

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    me too

    There has been oversupply of this product in all States....
     
  16. Tattler

    Tattler Well-Known Member

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    Can she refinance to much lower interest rates? I would do this first if it allows.
     
  17. virgo

    virgo Well-Known Member

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    Just as a follow up; my friend has offered me a 30K discount to take the Off-the-Plan apartment off her hands...:mad:
     
  18. MTR

    MTR Material Girl Premium Member

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    tempting not:(
     
  19. virgo

    virgo Well-Known Member

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    it rep. about 5% discount...hmm....

    If she returns to developer she forfeits about 60K deposit.
     
  20. MTR

    MTR Material Girl Premium Member

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    Dont touch this product in this market just my opinion