Deposit Bond Australia (‘DBA’) specialises in the development and management of deposit bond programmes. Our combination of broad credit policy, professional service and competitive pricing across all terms underpins our reputation as Australia’s premier issuer of residential and commercial deposit bonds. DBA provides deposit bonds from 6 weeks to 66 months, catering to a range of purchasers including individuals; owner occupiers; investors; first home buyers; self employed; retirees; company trust and SMSF applicants.
If you are an owner occupier or investor planning to buy a property off the plan, then we recommend investigating whether the developer will accept a deposit bond as an alternative to a cash deposit. Deposit bonds are a form of financial guarantee underwritten by a rated entity, taking the place of a cash deposit when securing the right to buy a property. More efficient than a bank guarantee, deposit bonds only require a one-time fee on approval, with no interest payable.
This month, the team at DBA offer a guide to buying property off the plan using a deposit bond:
Buying Property Off the Plan
Buying a property ‘off the plan’ involves committing to buy a property which has not yet been built. In the Australian property market, this usually refers to apartments or townhouses, as well as houses in some cases. The decision to buy is based upon the information provided by the developer regarding the property, and buyers are usually required to pay a deposit of between 5% – 10% upon signing the contract. The remainder of the purchase price is paid when the property is completed.
Purchasing off the plan can be a much more affordable and flexible option for home buyers and investors than buying an existing property. Developers tend to offer lower prices and other financial incentives to secure the project. Buyers can have more control over design elements such as floor plans and finishes, and may be able to claim certain stamp duty concessions or tax deductions. Off the plan purchases also often allow the use of a deposit bond, offering buyers a cost effective and secure alternative to a cash deposit. For more information about deposit bonds, please see our Essential Guide to Deposit Bonds.
Benefits of Deposit Bonds for Off the Plan Purchases
There are several benefits to using a deposit bond to fund an off the plan purchase. Deposit bonds are a useful financial tool for buyers without ready access to a cash deposit. Deposit bonds are cost effective, particularly in long term settlements, and offer a secure alternative to providing a cash deposit to the developer for a long period of time. The unsecured nature of deposit bonds means that they do not tie up other cash or property assets, so there is no need to break investments or sell shares prematurely, and can usually be approved and issued within 24 – 48 hours of lodgement.
Deposit bonds can also simplify the buying process where buyers intend to borrow 100% of the purchase price, or fund the purchase from a future sale of assets. They can also streamline the ‘sell to buy’ process, where the buyer intends to fund the purchase through the eventual sale of another property.
Deposit bond applicants must be Australian citizens or hold permanent Australian residency status. Buyers must provide a copy of the Particulars of Sale & Special Conditions contained in the Contract of Sale of the property being purchased, and be able to prove their ability to pay 105% of the purchase price on the settlement date. For superannuation funds or applicants using a Trust structure, a copy of the Trust Deed is needed to provide proof that the entity is authorised to enter into the Contract for Sale. For more information about supporting documents and the deposit bond application process, download our Deposit Bond Application Checklist.
If you choose to use a guarantor for your deposit bond application, they must fully complete the appropriate details and sign the application form. A separate Deed of Guarantee and Indemnity is also required to be signed by all parties, which will be provided by DBA once the application has been assessed. Guarantors may be provided for asset purposes only, and can be co-owners of property or Trustees if you are a Trust applicant. To learn more, download our guarantor checklist here.
What Sets DBA Apart for Off the Plan Purchases
Developers who accept deposit bonds for off the plan purchases will include a section in the Contract of Sale regarding deposit bonds or bank guarantees. Often, developers will request a deposit bond with an A+ credit rating, to ensure that the deposit will be honoured if the buyer does not complete the purchase. Deposit Bond Australia is underwritten by QBE Insurance (Australia) Limited, a global insurer with the highest and only A+ (Stable) S&P Rating available in the current market.
SInce 1998, DBA has built a reputation for offering a consistently reliable and efficient service reviewing applications, and approving and issuing residential deposit bonds. We offer an in-house credit assessment, which is equivalent to a full doc loan application. This ensures that buyers do not need to arrange a loan approval before applying. As a purchaser of an off the plan property, you can rest assured that DBA deposit bonds are the most cost effective solution in the current market, allowing you to retain full control over your assets.
For more information about our range of products and services, please refer to our Information Brochures located under Downloads.
The friendly staff at Deposit Bond Australia are available during normal business hours (EST) to talk to you about your needs. If you have any questions about buying property off the plan using deposit bonds, please Contact Us or use our Freecall number 1800 266 388.