Direct Investment in Real Property

Introduction Investment into real property is an alternative to investing in the share market Perceived to be less risky than shares

This Topic will Cover: Differences Between Residential Property and Commercial Property Bodies Corporate Property Investment Schemes and Consumer Protection Torrens System of Land Registration Legal Issues Relating to Contracts for the Sale of Land Off the Plan Purchases

1. Differences between residential property and commercial property Residential property most commonly purchased directly by investors. Residential Leases typically last six to twelve months. Residential Tenancies Act 1997(Vic) and other state legislation apply. In Victoria, disputes are heard in the Victorian Civil and Administrative Tribunal.

Commercial properties include shops, warehouses and factories. Capital required may be larger than residential investment. Commercial leases are typically longer than residential leases – minimum of five years. Governed by the tenancy agreement (contract) and by the Retail Leases Act 2003 (Vic).

Common property of strata title units is controlled by the body corporate.

2.Bodies Corporate Owners Corporations Act 2006 (Vic) provides regulatory scheme for the management of body corporates Functions of body corporates are: To Manage and administer the common property To Repair and maintain The common property The chattels, fixtures, fittings and services related to the common property and its enjoyment

- equipment and services for which an easement or right exists for the benefit of the land affected by the owners corporation or which are otherwise for the benefit of all or some of the land affected by the owners corporation. To take out, maintain and pay premiums on insurance. To keep an owners corporations register.

3.Property Investment Schemes and Consumer Protection Wealth creation seminars are prevalent No qualification / Licencing requirements Some seminars sell a product or another seminar, rather than just offer advice ASIC has issued warnings about this type of seminars and schemes

4. Torrens System of Land Registration

Torrens system of land registration . Indefeasibility of Title means that the person who is registered on the title has an unquestionable title to the land. Exceptions include fraud.

According to the doctrine of tenure, all land is owned by the crown, and citizens merely holds land of the crown. (This explains why compulsory acquisition is a legal right of the Crown).

Fee Simple is the greatest interest in land – closest to absolute ownership. Fee simple interest can be disposed during the interest holder’s life time (for example by selling the property) or be disposed by will. Strata Title governs the ownership of apartments or units – each apartment or unit usually has a separate certificate of title.

5. Legal Issues Relating to Contracts of the Sale of Land Contract for the Sale of Land must be evidenced in writing. (Instruments Act 1958) Section 32 statements must be given to prospective purchasers before a contract of sale is signed. It is possible to negotiate a “subject to finance” clause into the contract Contract must specify which items are fixtures and which item are chattels.

6.Off the Plan Purchases Off the plan involves entering into a contract of sale prior to construction. Stamp duty savings apply. Settlement happens after the construction is completed. Purchaser can resell prior to settlement. Deposit is payable at the time of the sale, and must be held in trust until settlement.

Deposit is forfeited if the purchaser defaults. The purchaser may terminate the contract by notice if the plan of subdivision is not registered within 18 months, unless the contract provides for another period.