Bank Guarantee - off-the-plan property purchase
#1
Bank Guarantee - off-the-plan property purchase
So, I just bought an off-the-plan apartment to be completed in late 2014 (approx). As part of the contract I have to pay 10% deposit upfront. My solicitor recommends a bank guarantee instead of cash. If I pay in cash, any interest earned will accrue 50/50 to me and to the property trust. With a bank guarantee I keep all the interest but there are bank fees involved.
Has anyone experienced obtaining a bank guarantee for this type of purchase? I've looked at Suncorp and they charge 1.5% per half-year period which is approx. 3% pa, so at current term deposit rates it looks more attractive to just go with the 50/50 share with the property trust. I'm trying to contact other bank and see if they could charge better fees.
Ta!
Has anyone experienced obtaining a bank guarantee for this type of purchase? I've looked at Suncorp and they charge 1.5% per half-year period which is approx. 3% pa, so at current term deposit rates it looks more attractive to just go with the 50/50 share with the property trust. I'm trying to contact other bank and see if they could charge better fees.
Ta!
#2
Forum Regular
Joined: Oct 2010
Posts: 280
Re: Bank Guarantee - off-the-plan property purchase
Are you sure he's not saying get a bank guarantee from the builder for the deposit?
#3
Re: Bank Guarantee - off-the-plan property purchase
no, i have to pay the initial 10% deposit in cash -- or alternatively, arrange a bank guarantee in lieu of cash.
#4
Re: Bank Guarantee - off-the-plan property purchase
So, I just bought an off-the-plan apartment to be completed in late 2014 (approx). As part of the contract I have to pay 10% deposit upfront. My solicitor recommends a bank guarantee instead of cash. If I pay in cash, any interest earned will accrue 50/50 to me and to the property trust. With a bank guarantee I keep all the interest but there are bank fees involved.
Has anyone experienced obtaining a bank guarantee for this type of purchase? I've looked at Suncorp and they charge 1.5% per half-year period which is approx. 3% pa, so at current term deposit rates it looks more attractive to just go with the 50/50 share with the property trust. I'm trying to contact other bank and see if they could charge better fees.
Ta!
Has anyone experienced obtaining a bank guarantee for this type of purchase? I've looked at Suncorp and they charge 1.5% per half-year period which is approx. 3% pa, so at current term deposit rates it looks more attractive to just go with the 50/50 share with the property trust. I'm trying to contact other bank and see if they could charge better fees.
Ta!
#5
Re: Bank Guarantee - off-the-plan property purchase
for only a one-off fee of $400 Macquarie Bank is offering a bank guarantee secured by cash with 0.25% pa interest which is shit. the other bank charge high ongoing fees as well.
if the property trust can invest in bank deposit with a better rate (perhaps around 4%) and we ultimately share 50/50 in the interest income, it might be better paying the deposit in cash. however i'm not sure if there are significant legal advantages of using a bank guarantee instead - i'll have to ask the solicitor next week.
#6
BE Enthusiast
Joined: Mar 2009
Posts: 471
Re: Bank Guarantee - off-the-plan property purchase
definitely do the bank guarantee... surprised they want 10% for off the plan though... either way good luck
#7
Re: Bank Guarantee - off-the-plan property purchase
the cash will be kept in a property trust and i'm not sure how it will be invested (although it cannot be used by the developer for the construction etc) - i assume it will be in conservative assets such as bank term deposits at market rates.
for only a one-off fee of $400 Macquarie Bank is offering a bank guarantee secured by cash with 0.25% pa interest which is shit. the other bank charge high ongoing fees as well.
if the property trust can invest in bank deposit with a better rate (perhaps around 4%) and we ultimately share 50/50 in the interest income, it might be better paying the deposit in cash. however i'm not sure if there are significant legal advantages of using a bank guarantee instead - i'll have to ask the solicitor next week.
for only a one-off fee of $400 Macquarie Bank is offering a bank guarantee secured by cash with 0.25% pa interest which is shit. the other bank charge high ongoing fees as well.
if the property trust can invest in bank deposit with a better rate (perhaps around 4%) and we ultimately share 50/50 in the interest income, it might be better paying the deposit in cash. however i'm not sure if there are significant legal advantages of using a bank guarantee instead - i'll have to ask the solicitor next week.
Otherwise, you could find that it's gone into the developer's I Need a Holiday fund
#8
Re: Bank Guarantee - off-the-plan property purchase
it's covered by the contract and i think there's a law protecting these kinds of trust funds.
#10
Re: Bank Guarantee - off-the-plan property purchase
Thanks that's what lawyers are paid to do and advise on.
#11
Forum Regular
Joined: Jan 2011
Location: Brisbane, Australia
Posts: 92
Re: Bank Guarantee - off-the-plan property purchase
Another option is a deposit bond from Vero - same as a bank guarantee but backed by an insurance company. www.depositpower.com.au
They are quite a popular choice although im not sure how they compare on price etc.
They are quite a popular choice although im not sure how they compare on price etc.
#12
Re: Bank Guarantee - off-the-plan property purchase
unfortunately this particular developer would not accept deposit bonds.
cash or bank guarantee only.
cash or bank guarantee only.
#13
Migration Agent
Joined: May 2002
Location: Offices in Melbourne, Brisbane, Perth, Geelong (Australia), and Southampton (UK)
Posts: 6,459
Re: Bank Guarantee - off-the-plan property purchase
Yep, we used a bank guarantee with a blocked bank deposit to buy an off the plan apartment.
The only hassle was collapsing the guarantee to release the bank deposit funds which were required at settlement - developers tend to give little notice of settlement and the developer's solicitor will probably want to retain the bank guarantee (so you can't collapse it and release the deposit without them knowing), so if you go for this option and will want to access the deposit at settlement make sure you are aware of your bank's requirements for the releasing of the deposit.
Good luck!
The only hassle was collapsing the guarantee to release the bank deposit funds which were required at settlement - developers tend to give little notice of settlement and the developer's solicitor will probably want to retain the bank guarantee (so you can't collapse it and release the deposit without them knowing), so if you go for this option and will want to access the deposit at settlement make sure you are aware of your bank's requirements for the releasing of the deposit.
Good luck!
#14
Re: Bank Guarantee - off-the-plan property purchase
thanks thanks. i might just as well pay in cash. the only major difference is the net amount you can earn from them. 50/50 interest share with trust or get guarantee at potentially good interest but high fees and potential settlement issues.