If you are one of the many using investment loans to finance residential developments with split contracts, our financial planners would like to tell you how the new Commonwealth Bank of Australia policy can affect your properties in Perth.
We know that CBA isn’t the only lender out there, but those who haven’t adjusted to their policy yet will do so in short order. CBA’s explanation is long on substance and short on filler. We think it is the best analysis to come out so far and we would like to share their policy with you.
The Back Story
Lenders have decided that many risks associated with split contracts are unacceptable, particularly if the land is settled and sold and requires the buyer to sign a building contract. The biggest problem is that many of these split contracts involve construction of a property that shares common roofs, footings and/or walls with adjoining properties.
According to the Australian Property Institute (API), the land outside of the building has no market value because there is no standalone or alternate use for it. Consequently, the API is now requiring property valuers to assign a value of zero to the land outside the building.
When no value is assigned to the land, it makes funding more difficult because the land is not accepted for security on the mortgage.
The End Result
The end result is that CBA will no longer be accepting applications for residential developments with split contracts that share adjoining roofs, footings or walls with adjoining properties.
They will, however, still be funding split contracts that involve single home constructions. They have provided an exception for what they refer to as “off the plan lending,” but they will not provide funding during the construction phase.
For those who already have this kind of loan approved, CBA will honour the loan.
What it Means to You
Our financial planners and mortgage brokers agree that the new policy has made this kind of property a counter-productive investment for now. As the market keeps changing, we are firm in our belief that it is more important than ever to have qualified help on your side.
We can provide that professional help. Call Purely Finance: (08) 9472 9766.