Published by Mark McKinley, Morgan Scholz
This article was first published in the Property Council of Australia (Victoria) newsletter.
With the recent changes in tax laws, banks tightening their belts and increased media regarding changing consumer sentiment, property developers might be thinking that it is all too hard.
However, Mark McKinley, Principal (Partner) at Russell Kennedy Lawyers, sees these challenges as opportunities for developers.
So what do you need to do to capitalise on these changes and excel in the current market?
Rolling out a standard contract of sale with standard options can be enough in some cases, but recently buyers have been demanding more. McKinley sees tailored offerings as key to appealing to a growing customer base.
“The buyer pool has shifted. The narrowing of the off-the-plan stamp duty benefits is driving many of our clients to target the local owner-occupier and first home buyer market. These buyers pay more attention to natural light, where the TV point is going to be, and they demand more extras than investors. Developers that can meet these demands will have a competitive edge” says McKinley.
“Some developers are changing their offering by combining apartments, providing customised fitouts or no fitouts. It is critical that these changes flow through into the contract without risking existing sales or jeopardising the developer’s finance arrangements.”
Developers should be armed with a toolkit of pre-approved special conditions drafted by their lawyer, and available for their sales team to clinch a deal at any time. Your lawyer should be on call to ensure that you are able to close deals as soon as possible.
In Victoria, Land Use Victoria and the State Revenue Office (“SRO”) are actively moving towards digital property transactions.
“For developers, the transition to digital is gathering pace,” says McKinley, adding “for many of our developer clients, electronic transactions are already the norm. Developers are looking for every opportunity to get ahead of the curve, and our team has been eConveyancing in some cases for quite a while.”
This includes eContracts, digital signing of both duty and lodgement documents, and online settlements through platforms such as PEXA.
The developers embracing this opportunity immediately see the benefits by quickly securing sales, reducing the ‘heavyweight’ paper cost and minimising the risk of drawn out sales scenarios.
The sale process must no longer be a burden, with the end goal of promptly receiving settlement funds being a standard level of expectation.
“The days of waiting 3 weeks for your lawyers to provide you with contracts are long gone”, says McKinley.
“If you are a property developer in Victoria and your lawyer hasn’t spoken to you about the shift to digital and what it means for your business, it’s time you speak to a new lawyer.”
Developers, purchasers and estate agents are familiar with the current paper contracts. “eContracts” seek to provide an easy mechanism to reflect the paper contract but to use technology to permit parties to sign from any device in a secure manner.
McKinley understands that as a developer, you need to strike while the iron is hot. Just as email has changed the way that you work, eContracts are a “must-have” option to ensure that you are able to beat your competition to get to each buyer.
Some of the benefits of moving to eContracts are the ability to remove geographical boundaries, exchange contracts quickly and to reduce human error and duplication.
“In my time as a real estate agent, and now as a property lawyer, my clients have always wanted to exchange contracts as soon as possible. eContracts can result in quicker sales.”
The impact of tightening debt finance is seeing lenders impose stricter controls and higher thresholds for sales on developers.
“Banks are imposing caps on the number of foreign purchasers within developments and tighter requirements on what constitutes an acceptable presale contract” says McKinley.
“Banks will be particularly interested in whether presale contracts have complying deposits, whether the contracts can be assigned, that there are no terms contracts and whether any of the buyers are related parties.
It is more important than ever that developers ensure that they have a water-tight contract that builds in the appropriate levels of protection but remains commercially acceptable to both buyers and the developer’s financier.”
In the past, governments would have long lead times before introducing legislative changes. Now, we are seeing changes announced one day and adopted as law within a very short timeframe.
The SRO’s new online document requirements, clearance certificates for the foreign resident withholding regime, GAIC (for land developers) and changes to GST remittance are just a few examples of changes introduced at short notice.
“Your team needs to be across these issues and must have confidence that your contracts are always up to date so that you can concentrate on your business” says McKinley, “Your lawyers should be actively communicating with your team on the impact of any changes in the law on your business.”
McKinley believes that “developers will need to be resilient, able to adapt to change and have a quality team surrounding them. Good developers will be able to pivot and adapt to this new environment.”
|Mark McKinley was appointed Principal (Partner) in the Property & Development team at Russell Kennedy Lawyers effective 1 July 2017.|
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