Options Come to the Residential Market

Options are not new but they are not often available for residential property in Australia.
Options are a concept from share investment where the buyer buys the right but not the obligation to buy a share a certain price at a particular time in the future.

Now buyers in WA and other states are being given the chance to buy options on residential sections. The buyer secures the section they want to buy at today’s price but they don’t have to sign a contract for up to two years.

The buyer pays 1% of the purchase price each year they hold the option. If the purchaser decides to proceed with the purchase then the option fees are deducted from the purchase price. The buyer is in control of when, or if, they sign the contract to buy. If they don’t proceed with the purchase then the option fee is forfeit.

Its a good time to introduce the concept of property options to residential property, although options have been common in the Australian commercial real estate market for some time.

Despite the recent interest rate cut buyers are still hesitant to commit while there is a lot of speculation of further interest rate drops before the end of the year. The property market is still slow. So buyers want to have a buyer for their existing property prior to committing to a new one. During the property boom buyers were happy to commit to their next property, knowing that they would sell their existing home quickly, but the that’s not the reality of today’s market. Now buyers do not want to be caught in the trap of expensive bridging finance and the pressure to reduce the price on their existing home for a quick sell. Options are a win/win situation: the developers get a committed buyer, useful for their financing, but the buyer doesn’t carry the risk owning two homes at the same time. Once their existing house is sold, the buyer can call the option in and buy their new section and start building – but that’s a whole other post!