Buying Land For Development With No Money Down
There are many books in the market and many websites in the
cyberspace that advocate the purchase of property with no money down. While it
is possible to purchase property with no money down in many countries, it is
rather difficult to do so in Malaysia as the maximum margin of financing
offered by the financial institution for the purchase of residential property
is 95% of the purchase price and the maximum margin of financing for purchase of land for development
is only in the region of 60% to 80% depending on whether the borrower has track
record or has good relationship and good standing with the financial
institution.
Most often than not, those who intend to purchase a piece of
land for development purposes need to fork out substantial amount of cash as
down payment let alone to purchase with no money down.
However the developer can always strike a deal with land
owner to jointly develop the land in a joint-venture deal where the land owner
provide the land for development and the developer bear all other expenses in
connection with the development of the land. Upon completion of development,
the land owner is then compensated by the developer a certain percentage of the completed units
which can range from 20% to 50% depending on the value of the land. In such a
joint-venture development, the land owner is normally compensated a value
higher than the amount that the land owner will get if he were to sell his land, thereby
effectively sharing the profit of the developer.
The developer in effect sacrifice part of their profit to
compensate the land owner but the developer is spared from forking out a lot of
cash for down payment of the land as well as
spared from paying holding cost of the land. As the units are only
distributed to the land owner upon completion of the development, the developer
effectively only pays the land owner upon completion of development. Therefore
effectively buying land for development with no money down.
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