Buying Property with super

Self-managed super fund property rules

Buying property with Super and your SMSF is only permissible if you comply with the rules.

The property:

  • Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
  • Must not be acquired from a related party of a member
  • Must not be lived in by a fund member or any fund members’ related parties
  • Must not be rented by a fund member or any fund members’ related parties.

However, your SMSF could potentially purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate.

What it will cost you

SMSF property sales may have many fees and charges. These fees can add up and will reduce your super balance.

You should find out all the costs before signing up including:

  • Upfront fees
  • Legal fees
  • Advice fees
  • Stamp duty
  • Ongoing property management fees
  • Bank fees
  • SMSF borrowing

    Borrowing or gearing your super into property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’.

    A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property. Before committing to a geared property investment you should assess whether the investment is consistent with the investment strategy and risk profile of the fund.

    Geared SMSF property risks include:

    • Higher costs – SMSF property loans tend to be more costly than other property loans which must be factored into your investment decision.
    • Cash flow – Loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
    • Hard to cancel – If your SMSF property loan documentation and contract is not set up correctly unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF.
    • Possible tax losses – Any tax losses from the property cannot be offset against your taxable income outside the fund.
    • No alterations to the property – Until the SMSF property loan is paid off alterations to a property cannot be made if they change the character of the property.

 

See ASIC’s Money Smart or the ATO website for more information on Self Managed Super Funds and property purchase.

 

 

IF you’re worried about the price you’re likely to achieve for your home in a sluggish market, the last thing you’ll want to be doing is invest more money in it before you sell.  So is it worth styling a property for sale?

Yes say the property stylists, is exactly what’s needed.As Richard Armstrong, director of Melbourne’s the Makeover Group, puts it: “There’s a popularity contest held every week in the suburbs. They’re called auctions.

“In any market, whether it’s booming or on its knees, if you have genuinely comparable properties sitting next door to each other, then the one that is done well is always going to sell for more and faster.”

Michele Ardon of Michele Ardon Interior Design, a property styling specialist in Sydney’s eastern suburbs, says in a small market vendors simply need to spend money on some degree of property styling.

“They are simply not going to get the return they want if it [their home’s presentation] is average,” she says. “If it doesn’t stand out from the crowd, what is there to attract the prospective buyer?”

In the US they call it “home staging” and the queen is Debra Gould (aka the Staging Diva) who writes endlessly on the subject and runs training programs for people looking to set themselves up as professional home stagers.

As Gould puts it: “A house is a product that has to be packaged and marketed to the right target audience at the right price.

“In a slow or buyer’s market, any house is just one of many for sale in a neighbourhood. Real estate agents may say the only way to sell is to drop the price, but this ignores the positive sales impact of improving the product.”

How to improve the product and how much to spend doing it depends on the particular property, but there are some basic rules.

Ardon says the minimum spend is about $6000 and up to “$30, $40, $50,000”, depending on the value of the home, balanced against the possible return.

Armstrong puts the figure you should fork out at “between 0.5 and 2 per cent of the property’s value”.

“I would say 25 per cent of homes in the Sydney metropolitan area are being styled,” says John McGrath, chief executive and founder of McGrath Real Estate.

“People are wanting a one-bedroom flat styled right through to a four-bedroom house.

“We think there are three key pillars to selling a property and they are pricing, marketing and presentation.”

A lot of properties only need a few thousand dollars spent to get them right, says McGrath.

“Most people spend between $3000 and $8000, and my gut feel is that it adds between 5 and 10 per cent sale value.”

He says it can be as simple as removing or adding furniture.

“An agent should be able to give you advice but we do use outside style consultants, too. At the very least re-styling your property will make it sell a lot quicker,” McGrath says.

“The amount you may need to spend – and the possible return you can hope to get – depends on the value of the home we’re talking about,” says Armstrong, who believes – for the purposes of property styling guidelines – you can divide the Australian market into three broad categories: houses up to $800,000; houses between $800,000 and $2 million; and the $2 million plus property.

To ensure a house, in any category, has the best chance of achieving the best price, the minimum that a vendor should do to their property is “make sure everything is finished”, says Armstrong. “That’s [property styling] at the barest, most basic level. It’s things like cracks in walls, broken windows, broken handles.”

The next things that need to be done with all properties is to de-clutter and decorate in colours that are “warm, neutral and light”, he says. “Make it inviting so that people walk in and imagine themselves living there.”

Sometimes a stylist may go as far as a complete strip out of a client’s possessions.

“If I’m going to be a client’s style police,” says Ardon, “then we need to clear the place out, make it look empty and put in some good quality pieces. Sometimes it’s just a case of de-cluttering and renting a little bit of furniture, putting a few things in that make the place stand out.”

Also crucial is the property’s presentation to the street.

“What people experience at the front of the property will always set their expectations of what they are going to get once they walk in the front door,” Armstrong says.

This can mean giving the front yard “good crisp lines”, tidying, pruning and-or replanting garden beds, not to mention modernising the property’s exterior colours.

Armstrong had a client repaint the outside of a worker’s cottage in Melbourne’s Fitzroy.

“I honestly believe it added 30K or 40K to the property,” he says. “The heritage colours that were popular 20 years ago – the soft yellow and the Brunswick green – getting rid of that sort of stuff and working to a more modern colour palette says to everyone doing a drive-by: ‘We’ve got modern colours on the outside because we’re modern on the inside too.’ ”

Once inside (at least for homes worth more than $1.5 million) Armstrong advocates spending money on a “lifestyle” revamp to give it the contemporary feel that will appeal to most possible buyers. “You have to make sure the door handles are updated, light fittings are updated and things like dishwashers, stoves and that sort of thing are updated as well,” he says, adding that this stage might also include investing in a stone benchtop in the kitchen or “significant amounts of landscaping”.

Armstrong maintains that for every $1000 spent the vendor can look to add an extra $3000 on the total price achieved.

Ardon is more upbeat about the rewards of giving a property a makeover. “At the bottom end, if you spend $5000, then you can expect to get $15,000 to $20,000 [more],” she says. “At the top end I think [the return] is in the one to five or one to six ratio.”

That said, she also believes the sluggish market means vendors must make sure their home is memorable.

“You use elements of surprise,” Ardon says. All the basic principles of making your home attractive apply, but in a particularly slow market (not to mention one that already may be more property styling savvy, such as Sydney’s upmarket eastern suburbs) you also need to add “something prospective buyers will remember when they walk out”, she adds.

Perhaps a bright colour for the kitchen bench’s splashback or “wallpaper on a wall as you walk in the entrance”, Ardon says.

“They will have seen six or eight houses and they’ll remember the one with the red splashback.”

Gould, the Staging Diva, has likened the process to speed dating. You may see eight houses one weekend but “you’ll reject most and possibly choose one property to go back to for a second look”, she says.

“Home staging or house fluffing is all about creating the best first impression, paving the way for potential buyers to fall in love.”

Source : Guy Allenby, The Australian Newspaper 30 July 2011

A professional buyer’s agent should find out as much as possible about a property and it’s surrounds for their clients before their client exchanges contracts to purchase. An important part of the due diligence process is investigating whether there are any issues with the local council.

The purchaser’s solicitor or conveyancer will examine the Contract of Sale, and review the 149 Certificate that is issued by the local council. However from my experience many solicitors and conveyancers do not have the time or inclination to thoroughly check all of the issues with the local council, and therefore it is incumbent upon buyers’ agents to do those extra checks.

As buyers’ agents, we should independently call the local council and speak to the Duty Planner or Duty Surveyor to enquire whether there are any past or current Development Applications (DA’s) on the property to be purchased, and also for the surrounding properties. Information received may have a negative impact on the property of interest and may affect whether your client is still comfortable to proceed with the purchase.

Previously rejected DA’s may contradict what a selling agent has advised on what is possible with renovating or extending a property. Other issues that may be disclosed are: unauthorised building works, Construction and Occupation Certificates not issued, and also demolition orders.

Many council websites have a DA Tracker section, where you can see a history of Development Applications on any property within the area of that council.

Some recent examples of issues that I have uncovered from local council checks have been:

A federation house was in a Roseville street that the Kuringai Council had recently re-zoned to Residential 2(d3), allowing multi-storey developments. My enquiries through council disclosed that a large new six-storey development would be built behind this house. The client still proceeded with the purchase but the sale price allowed for this issue.
A house in Fairlight was affected by road widening. The client’s conveyancer ran a check through the RTA that stated that there were no road widening issues for this property. However my enquiries through Manly Council revealed that there was a Road Widening order on this property, that had been issued by the council independently of the RTA. The land resumed would have taken half of the lawn and garden space of the house. Our client decided not to proceed with this purchase.
A Maroubra unit, with open views to the city, was to lose those views due to a new development directly in front of this building. We checked the plans of the new development, and the client then decided not to proceed with the purchase.
In summary, it is very important that council checks are done on prospective properties as part of a buyers’ agent’s professional due diligence. Failure to do so could potentially expose you to litigation and liability with clients if adverse issues are uncovered following their purchase.

By Henry Wilkinson – Principal, Homesearch Solutions, for the NSW Real Estate Institute 2011

Awards for Excellence Homesearch Solutions

The REINSW Awards for Excellence gives recognition to the real estate industry’s top performers. The most prestigious awards of their kind in NSW.

For the second successive year, Henry Wilkinson of Homesearch Solutions has been nominated as a finalist for the 2011 NSW Real Estate Institute (REINSW) in the Buyers Agents Category. The award winner will be announced on Saturday, 15 October 2011 at the Sydney Convention & Exhibition Centre.

 

New Unit Depreciation?

Many financial planners and investment property “experts” advise people to buy brand new units so that they can get the tax depreciation benefits, which can be offset from their personal income for their annual tax return.
However from what I have seen from many of these brand new “generic” units over the past 10 years, particularly ones in medium to large complexes, is their relative lack of capital growth compared with say older style art deco units or even 1960/70’s buildings that are in a better location (for Sydney – near beaches, inner city, harbour etc).
A new investment property buyer claims depeciation expenses on an annual basis, but when eventually selling the property they have to add back in the total of those benefits claimed for capital gains tax calculations anyway, thus negating the benefit in the overall property transaction.
The bottom line is that the tax depreciation benefits gained by buying new units will rarely equal the extra capital growth achieved with buying an older style unit in a better location.
Many new unit complexes tend to be built in former industrial areas or on the city fringes because the land is cheaper, and are often not close to amenities.

Auction Procedures and Powers of Attorney

The alternative to Private Treaty is sale by Auction.  This is where a property is offered for sale to the highest bidder on Auction Day. The property will usually be open for inspection for around 3-4 weeks before auction day. It is important that all due diligence (ie. Checking the contract, building and pest inspections, strata reports etc) be carried out before the auction day, as unlike Private Treaty, once the hammer falls, the property is sold and there is no cooling off period. A deposit, usually 10% is payable after the auction at the time of signing the Contract of Sale.

If a property passes in at auction and you are the highest bidder, you normally have the first right of negotiation with the vendor (or agent).

It is also possible to buy a property prior to auction, simply by getting “Offer & Acceptance” and following the due diligence procedures as shown above in Purchasing by Private Treaty. After successful exchange the property auction will then be cancelled. Remember also that there is no cooling off period if you buy pre-auction.

Auction Bidding Register & Confidentiality Issues

There were substantial changes brought about in relation to dummy bidding & auction bidding registers by the reformed Property Stock & Business Agents Act (2002).

These New South Wales laws now allow for only one dummy (vendor) bid at a property auction, which must be announced when made, and in practice is usually done by the auctioneer. When introduced there were fears that instead of the selling agent’s past practice of employing professional dummy bidders to go from auction to auction, vendors would continue to have family, friends & associates to do the dummy bidding for them, as they also have in the past. However the Australian Competition & Consumer Commission (ACCC) has since stepped in and added weight to banning the practice of dummy bidding across Australia, by promising fines of up to $1.2 Million for real estate companies, and up to $220,000 for vendors and individuals. The combination of these laws appear to have made a marked difference to the performance of auctions.

A major concern from buyers about the new Bidding Register is that of confidentiality. Regardless of the Privacy Act regulations prohibiting selling agents from using the register information for future marketing, they will have records in their office of the auctions that a buyer has attended, and therefore a clear idea of their budget and other information.

One way around having your name disclosed on the bidding register is to employ a Homesearch Solutions to do the bidding on your behalf, by giving us a strictly limited Power of Attorney. Under these circumstances we will only have to put our name on the register and not the actual buyer’s, which will maintain confidentiality.

The terms of the Power of Attorney can be as specific and limited as the buyer wants, such as keeping it to a particular property on a set date, and also be subject to a separate letter which states the bidding limit.

People that may be inclined to use this system are: buyers who have made rejected pre-auction offers and who want to remain anonymous to the selling agent at the auction, high profile community members, those intimidated by the auction room, and also people concerned about selling agents having access to the register.

What is Private Treaty?

A Private Treaty sale is where a property is listed with a purchase price and is not subject to an auction. It is up to the purchaser to negotiate a mutually acceptable price with the selling agent or vendor (owner of the property).  When a price & the sale terms are agreed you are said to have “offer & acceptance” to buy the property. The purchaser is then usually given a short period of time in which to conduct “due diligence” (unless done prior to the offer), which includes checking of the Contract of Sale by a solicitor or conveyancer, conducting building and pest reports, and undertaking strata inspections (for apartment purchases). When the purchaser is satisfied it is time to sign a copy of the Contract of Sale and pay a deposit (usually 10%, but can be negotiated) for the property. The vendor also signs a copy of the Contract of Sale after which “exchange” occurs. This basically means forwarding the purchasers signed Contract of Sale to the vendor’s solicitor or conveyancer and the vendors signed Contract of Sale to the purchaser’s solicitor or conveyancer. Once this has occurred the property has been officially sold, and until this has occurred there is always a risk of gazumping taking place (where another purchaser offers a higher price for the property which is accepted by the selling agent or vendor).

There will usually be a cooling off period during which time the purchaser can effectively terminate the Contract of Sale. This is usually 5 days after contract exchange, but the purchaser must pay the vendor 0.25% of the agreed purchase price as a penalty. If the cooling off period is agreed to be waived at exchange then the solicitor/conveyancer must sign the 66W Certificate and attach it to the contract.

Settlement will usually occur 42 days (6 weeks) after exchange, but this is negotiable between the vendor and the purchaser.  At settlement all remaining monies are required (ie, purchase price less deposit & other adjustments).It is important to take into account other “hidden” costs of purchasing a property which may be required prior to settlement, at settlement, or shortly afterwards.

Bidders guide

Residential and rural property auctions

You will not be able to bid at an auction of residential and rural property in NSW unless you give the selling agent your name and address and show proof of your identity. Your details will be recorded by the agent in the Bidders Record and at the auction you will be given a bidder’s number. Registering for an auction does not mean you must bid. Registering simply gives you the right to bid.

Who needs to register?

If you are bidding to buy the property jointly with another person, for example, a spouse or partner, only one of you needs to register.

You need to register if you are bidding for another person or a company, and you need to show the agent a letter of authority from them, authorising you to bid on their behalf. This also applies if you are bidding on behalf of someone on the telephone.

If you are bidding for another person the letter of authority must include the person’s name, address and the number on their proof of identity (eg. driver’s licence).

If you are bidding for a company the letter of authority must be on the company letterhead and the ABN will be recorded in the Bidders Record as the company’s proof of identity.

Proof of identity

To register, you must present a card or document issued by government or a financial institution, that shows your name and address, for example:

  • driver’s licence or learner’s permit
  • vehicle registration paper
  • council rates notice.

If you do not have this kind of proof of identity, you can use two documents that together show your name and address.

One must show your name and be issued by a government or financial institution, for example:

  • passport
  • Medicare card
  • ATM/Eftpos card
  • credit card or store card
  • birth certificate
  • citizenship papers.

The other must show your address, for example:

  • utilities bill (eg. gas, electricity, telephone)
  • real estate rental agreement
  • statutory declaration stating your address.

When to register

You can register with the selling agent at any time prior to the auction, such as when you inspect the property, or on the day itself.

If you pre-register, you will still need to show the agent your proof of identity on auction day. The agent will then give you your bidder’s number.

What happens at registration

The agent will write your name, address and the number of your proof of identity in the Bidders Record and, if you are bidding for someone else or a company, their name, address and proof of identity details. The agent will then give you your bidder’s number, which must be displayed when you bid.

What if I arrive at the auction late?

If you arrive after the auction has started and wish to bid, you will need to quickly find the agent and register or present your proof of identity, if you have pre-registered.

If you need to make a bid immediately, hold up your hand to let the auctioneer know you are going to make a bid after you have registered.

As soon as you have a bidder’s number, the auctioneer can accept your bids. Return your bidder’s number to the agent after the auction.

Your privacy

The agent is not permitted to show the Bidders Record to anyone, including the property owner. Only an authorised person from the Office of Fair Trading is permitted to see the Bidders Record.

The agent must store the Bidders Record securely and cannot use it for any purpose.

Auction conditions

This auction is being conducted under certain conditions that are set by law.

The auctioneer will have these conditions on display before the auction so that you can read them. The auction conditions include:

  • the highest bidder is the purchaser, subject to any reserve price
  • the auctioneer is entitled to make one bid only on behalf of the seller
  • before the auction, the auctioneer must announce that the auctioneer is permitted to make one bid on behalf of the seller
  • the auctioneer must announce immediately before, or in the process of making the bid, that he/she is making a vendor bid
  • the auctioneer can refuse a bid that is not in the interests of the seller
  • the auctioneer has no authority to accept a late bid, that is, a bid after the fall of the hammer
  • if there is a disputed bid, the auctioneer is the sole arbitrator and makes the final decision
  • the successful buyer’s name must be given to the auctioneer as soon as possible.

Successful bids

If you are the successful bidder, you must sign the sale contract and pay a deposit on the spot, usually ten per cent of the purchase price. There is no cooling-off period when you buy at auction.

After the exchange of contracts, your solicitor or conveyancer will carry out various searches on the property. Your solicitor and the seller’s legal representative will then arrange for settlement at which time you must pay the balance of the purchase price.

Dummy bidding and collusion

It is illegal to make dummy bids at an auction.

The seller of the property is entitled to have one bid made on their behalf by the auctioneer. When the seller’s bid is made the auctioneer must announce it as a vendor bid.

If you make dummy bids for the seller, you may be prosecuted and fined up to $55,000. The property seller who asked you to bid can also be fined up to $55,000, as can the agent and the auctioneer if they were involved in the arrangement.

It is an offence to collude with someone to interfere with free and open competition at the auction. This offence carries a maximum fine of $55,000.

Co-owners and executors

A co-owner, executor or administrator or someone bidding on their behalf, may make more than one bid to purchase the property as long as:

  • this is outlined in the auction conditions
  • the auctioneer has announced this before the start of bidding at the auction
  • the auctioneer announces before the start of the auction, the bidder registration number of any co-owner, executor, administrator, or someone bidding on their behalf.

From NSW Office of Fair Trading Website www.fairtrading.nsw.gov.au

If you want to buy a home, land or investment property you’ll have to sign a sale contract. The legal work involved in preparing the sale contract, mortgage and other related documents, is called conveyancing. It’s possible to do your own conveyancing, however, most people get a licensed conveyancer or solicitor to do the work for them.

Exchanging contracts and paying a deposit

Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is usually just verbal and not binding. Up until you exchange contracts either you or the vendor have the right to change your minds.

After you have discussed the contract with your solicitor or licensed conveyancer and all the proper inquiries have been made, you will be ready to exchange contracts. There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.

At the time of the exchange you will be required to pay a deposit, usually 10% of the purchase price. Following exchange, you have a financial interest in the property so it’s wise to get it insured.

Note: A contract has not been made and is not legally binding before the exchange of contracts and the payment of a 10% deposit.

Cooling-off period

When you buy a property in NSW there is a five business-day cooling-off period after you exchange contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.

A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.

You can waive the cooling-off period by giving the seller a ‘66W certificate’. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer.

If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.

Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers’ market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.

It is possible to waive, reduce or extend the cooling-off period with the consent of the seller. If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.

Settlement

Settlement usually takes place about six weeks after contracts are exchanged. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments are paid on this date.


From NSW Office of Fair Trading website www.fairtrading.nsw.gov.au

Located in the Eastern suburbs, Double Bay is in the process of a resurgence, and is a suburb that Homesearch Solutions is tipping for relatively high capital growth prospects.

When Westfield opened in nearby Bondi Junction in late 2003, many of the shops subsequently went out of business in Double Bay and brought about a slump for the commercial profitability of the suburb, previously known by it’s nickname “Double Bay – Double Pay”. The closing of the Village Cinema and loss of public car parking areas further contributed to it’s general decline.    

However over the past couple of years Double Bay has re-invented itself, particularly with it’s new unit residential developments such as the Stamford Cosmopolitan Centre in Knox Street, previously the Sir Stamford Hotel, which is due for completion in late 2009. In Cross St, the Ashington Group is proposing to re-develop the Stamford Plaza site with a new luxury residential & retail building.              

On the other side of New South Head Rd, discussions continue between Woollahra Council and Woolworths about a low-rise development on the Kiaora Lands site.

Apart from the new developments, Double Bay is full of quality restaurants, hotels, cafes, shopping & other amenities, with a sophisticated village atmosphere. It sits directly between the two most expensive suburbs of Sydney, being Point Piper & Darling Point. It is linked to the city by ferry from the pier in Bay St,  is on the major bus routes, and also the Eastern suburbs train line at nearby Edgecliff Station.

There are a variety of unit styles, ranging from simple 1970’s and art deco units starting at around $500,000 for a basic 1 or 2 bedroom places, through to over $10M for modern deluxe units with harbour views. Houses start at around $1.5M for a basic cottage or terrace through to very high premium waterfront houses worth tens of millions. Many of the houses are character Victorian & Federation, mixed in with more modern styles, particularly Tuscan.