Risks buying unregistered land now

Getting a lot of conflicting answers to this question.

There is a huge development currently under assessment at a local council in south west Sydney for nearly 4000 homes to be developed.

Unfortunately the land won’t be registered till probably mid next year or even later. Council is still assessing and earth works hasn’t commenced yet.

Developer wants the 5% deposit until registration of the land. There’s a possibility of 2.5% variation to size of land.

do you think that it’s risky especially in this climate? I’m also concerned if there’s a possibility that the developer may go belly up even though they’re a huge developer because of the possible “recession”

We are first home buyers and in a position to buy but we are concerned market value by the time of settlement might be lower than the contract price.

 

This is really the biggest risk with land waiting to be titled. If the value increases that's great, if it decreases you may need to come up with extra cash to settle. The only way to mitigate this risk is to save as much as you can to have cash for an unforeseen problem.

If the value does drop, you'll only be allowed to borrow a percentage of that value. This may mean that you can't get finance for the purchase. If that occurred you'd potentially be liable for a 10% deposit plus any additional costs the developer may incur in selling it to someone else. At a very minimum you wouldn't get a refund on the deposit you've paid.

Usually valuers simply do their best to agree with the actual purchase price and problems with the valuation are generally rare. It tends to be these types of purchases where valuation may have problems, so this type of acquisition is more risky than most.

 

We have over 5% but by the time the land is registered we will have much more including the deposit for the house.

I definitely agree that it’s a significant risk and that’s why we are thinking that we should maybe hold off until September when job keeper finishes and mortgage deferments through the banks are over

to me I cannot understand the unregistered land process and how the purchasers rights are extremely low. It is a risky move within this climate

 

thank you for your response I really appreciate it! Is it true that land fluctuates more than property prices?

 

You seem to have gotten it exactly in the second half of your sentence!

 

I've never heard that before. The value of a property is really defined by the land. Buildings actually fall to pieces over time and the value drops. The land becomes more scarce (with population growth) and is what drives property prices upwards.

Overall I wouldn't say that property values fluctuate very much (unlike shares or currencies at least). The problem with new developments is the unregistered land you're proposing to buy has had its price set by the developer, not by the open market. The developer might be releasing land gradually over time to artificially create scarcity.

This (and other things) means there might be some difference in what the value of the land might be if you decided to sell it on the open market shortly after settlement. Hence this type of property purchase can be more volatile in the short term.



As to the purchasers rights, they're the ones writing the contract, you want to buy the land, so you agree to their terms. If you don't, they just sell to someone else who will.

 

Unfortunately it’s true!

 

thank you for your advice and I agree, they do realise land to artificially create scarcity which is frustrating in itself when the proposed DA is 4000 lots

 

The deposit is always kept in a trust account unless it's states on the contract it's released to the developer.

I've had clients that made money buying land in South West Sydney were they waited 2 years for the land to register and the value increased substantially. Which will be best case scenario for you as they lend 80% of the value of the property.

However in this climate if the value of your land is lower then purchase price, then you'll be in trouble, cause that means more deposit out of your pocket.

 

Another problem can arise if the land takes much longer than planned to become available to you.

Make sure you are happy with the “sunset clause” - I.e., how long you have to wait before the contract can be terminated due to non-completion or bankruptcy of the developer.

You don’t want your obligations under the contract to continue for years if things go pear-shaped, which will prevent you making other arrangements.

 

thank you, I’ll ask the conveyancer regarding the sunset clause. I’m not even more concerned with this recession, although the land won’t register to potentially 1-2 years time it’s going to really be interesting to see what happens.

I remember the recession in the 90s when I was younger but of course was not old enough to understand the impact on the property/land market

 

Hi There,

We purchased unregistered land back in mid 2017 in the South West area. DA still hasn't been approved and there is 12 months left until we can use the sunset clause to get our money back. I wouldn't recommend going through this process as there is too much risk unless you have at least 40% deposit up your sleeve and things can even go wrong, for example you can lose your job just before time of settlement and you can't get a bank loan.

We will certainly be asking for our money back in 12 months time, the DA is not approved yet and the site work hasn't been started so it's fair to say that our land won't be registered in 12 months.

 

Hi
The land price has sky rocketed now. Even for land that is registering late 2022. What type of risk is there buying this type of land. The price are eye watering expensive too.