Adelaide resident, Kirk asks
“I have bought a company title unit, but my bank said it’s unacceptable security. Are there any lenders that can help me finance a company title unit?“
There are two main types of unit titles in Australia. There is a strata title, and then there is a company title.
A strata title is where a complex of units or townhouses have been split up into individual lots, and they all hold their own title. In essence, when selling or buying a property like this you are buying a property which is fully saleable and has its own title.
A company title is essentially a purchase in a share of a company. So, a company has ownership of a whole unit block, and there are shares in that company. When buying a company title, you own a share in the company that owns the title and the percentage of shares that you own is typically based on the size of the unit compared to the whole block. You don’t actually own your own property as such. You own a share in the company that holds the title for the whole complex.
Traditionally company title units are not accepted as security by the majority of lenders, but there are some lenders that may consider it.
Are there any advantages to this type of borrowing?
While its fairly uncommon these days to purchase a company title there are no real advantages from a borrowing perspective, perhaps from an affordability aspect a company title unit may be cheaper than strata title unit to initially purchase.
The potential upside is that if you do buy a share in a company title and in the future the title is changed to a strata title then you may gain instant equity out of it since a strata-titled unit is typically worth more than a company title. So, if there is future potential for all owners to agree on converting the share to a strata title, then you may gain a more valuable property.
You will find many of the company title units were developed prior to strata titling coming in and are typically located in the eastern suburbs of Sydney. These are predominantly the older art deco style buildings in Elizabeth Bay and surrounding areas. There are also a few properties located in Lockhart but they are becoming rarer and rarer.
What are the main concerns when buying a company title unit with regards to securing finance?
The main issue with company title units is that it is not as easy to finance as a normal strata-titled unit. Typically, you are limited to the percentage of the purchase price that you can borrow, usually only between 80%- 85% of the purchase price or the property value rather than a normal strata title unit, where you could potentially finance up to 95%.
Potential lenders deem this type of property as unacceptable security mainly because the security is technically shares in a company as opposed to an actual property. From a marketability standpoint if a lender had to foreclose on a property, a company title unit is harder to sell, so you will find because of the risk associated with company title units’ lenders will lend a lower percentage to offset the risk.
So, in summary, a few key points to remember when purchasing a company title unit are
- Traditionally company title units are not accepted as security by the majority of lenders
- Finance is usually only granted up to and between 80%-85% of the purchase price or the property value
- If you do purchase a share in a company title unit and there is potential for a unanimous decision by owners to convert the share title to a strata title you stand to gain a more valuable property.
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