FINANCIAL QUESTIONS AND ANSWERS - EQUUS

Do I qualify for a mortgage in Australia?
An easy calculation at today’s interest rates on an interest only loan for every AU$100,000 borrowed you will require an AU$20,000 per annum salary or in rand at * 6 to 1, R120,000 per annum per R100,000 borrowed.
As an example an apartment which costs AU$800,000 - minimum deposit for non-residents 30% or AU$240,000 at *6 to 1 = R1,440,000. Loan would be AU$560,000 salary requirement 5.6 x R120,000 per annum. Gross salary required to qualify R672,000 per annum. If you have a South African Home Loan of say the equivalent of AU$100k then this would reduce your overall borrowing capacity. Remember you can syndicate.

What would be my repayments and return?
Australia, like most first world, stable countries work on about a * 4% net returns on purchase price. So an AU$800,000 apartment could give you approximately AU$2,666 per month net rent by March 2011. Your repayment on an AU$560,000 mortgage —AU$560,000 loan multiplied by 7.79% per annum variable interest then divided by 12 months = AU$3635 per month interest only repays. Shortfall will be about AU$969 per month. As you can see the rent will only support approximately a 50% mortgage, but remember you are protecting your capital against inflation and capital growth in Western Australia could exceed 8% per annum.

Deposit?
The minimum deposit for a non-resident is 30% payable as to AU$10,000 deposit on signing of the agreement. A further 15% of the purchase price minus the AU$10,000 will be paid within 30 days, the final portion of the deposit, the remaining 15%; will be due on settlement in March 2011.

Who holds my deposit?
Our lawyers, (independent of the Developer) are the largest private legal firm in Western Australia, established in 1921, have been appointed by I B I Properties to administer and act on behalf of each individual client. Contact us for their resumé. Your deposit will be paid into the Lawyers Trust Account, held in your name only to be released for the purchase of your apartment on settlement date, approximately March 2011. This firm will also act as your settlement attorney holding your agreement of sale and safeguarding all your legal interests as far as handover takeover and occupation certificates are concerned. Contact us with regard to their overview and their legal fees. We will introduce you via email then you deal directly with them as an individual client.

Do I earn interest on my deposit?
Yes, we have negotiated with our Lawyers that interest will accrue on your deposit being held in their Trust Account, and * current rates are in excess of 6% per annum. Interest can fluctuate with the economy of the Country. Non-resident tax will be deducted at 10% off the top. What we have done, is placed our deposit in their Trust Account and the interest earned over the 3 years during construction will be used to pay towards our stamp duty, (see next question.)

Stamp Duty and Legal Fees?
Depending on the value of the apartment, the stamp duty is on a sliding scale. Up to AU$500,000 purchase price the duty is AU$20,700 which works out a 4.14%. Over AU$500,000 is 5.4%, so on the AU$800,000 apartment the stamp duty would be AU$36,900 or 4.6%.
This stamp duty is to be paid within 24 months of the signing of the Agreement of Sale, you can pay this into your Trust Account and earn interest in advance. Remember you are getting interest on your deposit which, after tax on AU$240,000 will give you approx. AU$13,000 per year so the interest on your deposit will earn you approx. AU$26,000, so you will have to add an additional AU$10,900 towards stamp duty.
Lawyer's legal fees for acting on your behalf will be AU$2,776, contact us for further information.

What happens if I default on settlement date?
The bottom line is that you will lose your 15% deposit. You will also be liable for the settlement. It is likely by 2011 that values will have increased considerably, so you would not have any problem passing it on. Our advice is if you have any doubts as to whether you can pay the deposit and meet the bond requirements then rather do not enter into the contract.

Can I sell my apartment during the construction phase?
No, unless the developer agrees.
The reason for this is that the values of the apartments have escalated so much during construction of previous developments, that there were up to 7 settlement agreements at the end of construction. This was a nightmare for the developers, and also folk were on-selling apartments while there were still other apartments on the developer’s side to be sold. Rather prepare yourself to be purchasing and settling in March 2011.

What financial documentation do we require for a loan?
An applicant putting down a 30% deposit would need to complete a fully verified loan application and provide full disclosure of income etc.
If it is a salaried applicant — 3 recent payslips and your IRP5 annual income summary.
If it is a self employed person — 2 years tax returns for both company and individuals plus 2 years profit and loss.
Alternately — under a 40% deposit — Low Doc Loan Application — a self employed person can complete an income declaration form and have their accountant provide a letter stating that they have been self employed for 2 years or more. ( No need for tax returns etc.)
All applicants, either fully verified or low doc will need to provide the following :
Copy of passport and drivers licence.
Copy of Savings/Deposit contributions
Copy of any finance/loan statements or credit cards
Copy of council rate notice to confirm free hold/mortgaged assets.

How do I go about applying for a loan?
We have entered into an Obligation Free consultation service with the Developers preferred Finance Broker, who is totally independent of the Developer.You will only get an indicative approval from a financial institution which is an agreement in principle to grant you a loan. Re-application will have to take place 3 months before settlement, so that will be around January 2011.
All of the above is relatively straightforward but you are bound to have more questions, please feel free to contact Ian Burgoyne. The best is on 0828264044 or email him at ian@ianburgoyne.com where he will write back to you.

* These rates will move up or down relative to exchange rate and general economic trends.