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!

Are you sure he's not saying get a bank guarantee from the builder for the deposit?

no, i have to pay the initial 10% deposit in cash -- or alternatively, arrange a bank guarantee in lieu of cash.

Wouldn't the choice depend on where the property developer is investing the cash? How do you know the rate of interest it will accrue?

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.

definitely do the bank guarantee... surprised they want 10% for off the plan though... either way good luck

In my (not very) humble opinion, if you're getting 50% of the interest, then you should have a say in where the cash is invested.

Otherwise, you could find that it's gone into the developer's I Need a Holiday fund

it's covered by the contract and i think there's a law protecting these kinds of trust funds.

Fair enough. Just read the fine print, ok?

Thanks that's what lawyers are paid to do and advise on.

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.

unfortunately this particular developer would not accept deposit bonds.
cash or bank guarantee only.

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!

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.