What to Look Out For When Purchasing Property

In Australia’s current real estate climate, purchasing land involves a myriad of factors that can significantly impact your financial standing and negotiating power. One crucial aspect is obtaining finance approval within three months of signing the contract. However, the catch is that this approval only lasts for 90 days, and circumstances might change during this period.

Finance approval is not a one-time process; it needs to be re-evaluated before settlement, which could expose you to potential changes in borrowing capacity. The lending landscape may have evolved since the initial approval, affecting your ability to secure the necessary funds. It's imperative to stay vigilant and be aware of these time-sensitive considerations.

For those entering the property market, a word of caution: it's increasingly advisable to include a subject-to-finance clause within three months of settlement. This provides you with additional negotiating power that might not have been present when initially signing the contract.

In the event of unforeseen circumstances or changing priorities, some individuals may consider forfeiting their deposit to exit the contract. However, developers may not be as negotiable on refunding deposits, particularly if the demand for land has diminished due to rising building costs. In a competitive market, developers may find it challenging to secure a new buyer quickly.

One crucial factor to consider is the status of the land. Untitled land could have been signed up for more than 12 months, introducing potential delays and uncertainties. Understanding the timeline and status of the property is essential for making informed decisions.

Interest rate fluctuations further complicate the landscape. A stress test for a 10% interest rate, compared to the previous 7%, means borrowers now have 25% less borrowing capacity than in May 2022. This emphasises the need for constant financial reassessment throughout the land acquisition process.

An important escape route for buyers is the sunset clause. If the land remains untitled within 18 months to 2 years from the contract date, purchasers have the option to exit without losing their deposit. This acts as a time limit on the contract, offering buyers an opportunity to reevaluate their decision.

It's worth noting that the sunset clause is not an automatic termination but a decision point. Developers also have the option to exit, protecting them from buyers who back out prematurely before the project completion. Often, there is an extension mechanism allowing for another 6 months.

In a hot market, developers might strategically use the sunset clause to their advantage. Slowing down the development process allows the sunset date to approach, providing the vendor with the option to withdraw, refund the deposit, and potentially sell the land for a higher price to another buyer.

Navigating the complexities of land purchase requires a keen understanding of the financial landscape, contractual details, and market dynamics. Stay informed, be proactive, and carefully consider the implications of each step in the process to make well-informed decisions that align with your long-term goals.

Please don’t hesitate to contact us if you are unsure of what you need to know, or if you have questions.