A tsunami of new technology is about to hit the property development world and businesses had better be ready. This was the message coming out of The Developers’ Forum education and networking event held at the ParkRoyal Parramatta on Tuesday 8 May.
Q&A highlights: GST headaches, speedy CDCs and the transforming power of technology
Tech heroes or villains?
E-conveyancing and open source banking promise to be two tech disruptors for 2018/19 and in years to come. With these technologies accelerating the development, funding and sales process, businesses can reap big benefits but they need to be ready. There will be stringent identification requirements to enable digital signing of loan and legal documents, and banks can potentially have access to all sorts of current data about the financial position of your business.
“From 1 July 2019, all property transfers must be electronically lodged through the PEXA platform. The good news is that it will take 20 minutes instead of three days for the money to clear. But as a buyer you’ll have to be more organised. Any funds you’re contributing will have to be in a trust or cleared account 3 days before settlement.” Pierre Saab, Macquarie Lawyers
“The increased transparency of financials that will come in with open source banking will be huge. Banks will make lending decisions based on much more timely and detailed financial information and that could have quite an impact on your business.” George Karam, BF Money
Speeding up development with CDCs
Architect Gus Fares flagged some important points around new planning legislation that takes effect from 7 July 2018. The new codes have particular benefits for medium density developments that tick all the necessary boxes required for a Complying Development Certificate (CDC). A CDC can be processed by a certifier in just 20 days. The certifier can grant you approval, a construction certificate and, in some cases, a strata certificate if required.
“Before you start the CDC application process, you’ll need to check if the Local Environmental Plan (LEP) for your council allows a multiple occupancy dwelling on the site. A Section 149 certificate from council can determine whether a medium-density CDC will be permitted. If you come to us with your Section 149 and a design verification statement from architect, we can help you determine if a CDC is viable for your project.” Gus Fares, Gus Fares Architects
“Let’s say you’re planning to build a duplex, you could be eligible for a residential home loan. When open source banking goes mainstream, you‘ll be able to apply online for finance, get approval in just a few days providing you agree to release all relevant data and digitally sign your loan documents. So with a CDC, you’ll have a loan and approval in place and be ready to start work onsite in just 5-6 weeks.” George Karam, BF Money
GST changes and cash flow concerns
From 1 July 2018, changes to how GST is paid will be having a significant impact on property developers. This new measure was introduced by the ATO to prevent “phoenixing” activities by property developers who sell a development, then quickly liquidate their business and pocket the GST. In future, the GST component of a sale will be part of the settlement amount transferred to the buyer, who will then be responsible for remitting this amount to the ATO. This will be mandatory for all property transactions where GST applies.
“On settlement the bank gets paid, the ATO gets paid and the developer is left with the rest. You won’t recover any of that GST until your next BAS is lodged and this can be a big issue for your cash flow in the meantime.” Sid Sfeir, Sfeir Accountants
“Standard contracts now include the GST component along with rates and all the other settlement items. And with e-conveyancing the ATO is going to know immediately that you’ve sold and for how much and what they’re owed.” Pierre Saab, Macquarie Lawyers
Making the bank your best friend
It came as no surprise to our audience that banks are becoming ever more demanding and selective in their lending arrangements. Our panel talked about a few issues that can disrupt the financing process, from banks getting heavily involved in selecting builders to their requirement for a detailed building program before loan approval. Michael Dakhoul of Construction Consultants was quick to stress the importance of doing whatever it takes to stay on good terms with the banks if you don’t want to risk future financing obstacles.
“You must disclose everything to the bank. If you and your quantity surveyor are talking about changes on site let them know before you get to the stage of applying for a section 96 modification. Even when it’s a small change it can have an impact on cost, volume of presales or your schedule. Keep it from them and there’s a very good chance you won’t be borrowing from that bank again.” Michael Dakhoul, Construction Consultants
“Your building program is like a GPS — it tells you where you’re heading and shows your critical path. That has value for you as the builder and it’s something the banks now expect to see. Larger builders and developers have the capacity to develop their programs in-house but smaller builders don’t have that kind of office back-up.This is where a Quantity Surveyor can help out if you can’t do it internally.” Michael Dakhoul, Construction Consultants