Page 2585 - Week 07 - Thursday, 18 June 2009
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Investors holding more than one block will be charged a non-refundable deposit of $1,000 to avoid land banking. This scheme has been designed to be flexible and as affordable as possible. The government and all groups consulted are content that the scheme will remain affordable to consumers over the long term and bring the dream of home ownership into the hands of many.
The issue of negative equity does not apply solely to the land rent scheme. Households with a traditional house and land package can find themselves in a position of negative equity. Negative equity occurs when the amount owed to the lender is more than the value of the property. As I have said before, it is not the government’s place to provide protection against the risk of negative equity.
Households may end up in a position of negative equity due to a range of factors beyond the government’s control, including changes in market conditions, the amount borrowed relative to the value of the property, lending criteria of financial institutions, and the maintenance and upkeep of the dwelling.
It is therefore difficult to provide a guarantee or protection against this risk. Ensuring that a lessee does not end up in this position is a matter that financial institutions and lessees consider as part of entering into a financial mortgage arrangement under the current circumstances. Participants will be immune to the risk of a drop in land prices to which other lessees are currently exposed. As such, people accessing land under this scheme have less financial risk if the market drops.
The land rent scheme brings the dream of home ownership closer to reality for many families. Whilst support from financial institutions is important, it is not the role of government to arrange finance. Likewise, rationing of credit by lenders is not the fault of the government. Whether a lender formally commits to providing finance under the scheme or not, it would be difficult to justify the winding up of the scheme as suggested in the Assembly resolution. Why would you do that? When the market changes, we believe that lenders will respond. In the meantime, the government will not wind up the scheme. Households interested in land rent in the future will need to make an informed decision about whether the scheme will be right for them, taking into account their circumstances and their ability to secure finance.
The land rent legislation is sound. It is good legislation and lessees are now able to land-rent new blocks of land in the ACT. In fact, there has already been one settlement, and it is understood some other households are in the process of arranging independent finance.
Households can finance construction on land-rent blocks in a number of ways, although mortgage over the property is the predominant method. The government does not want to take away the choice of using land rent from Canberrans who have already accessed the scheme or who see it as a way to achieve a home of their own.
In response to the concerns of the Assembly, Chief Minister’s Department and Treasury have compiled an information paper addressing the issues of concern in the resolution. This paper outlines the consultation process undertaken and addresses Assembly concerns about affordability and negative equity.
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