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28/1994 Purchase of Land Only

Document

Central Office Instruction

amending General Orders (1993 edition)

Instruction No. 28

Date of Effect: 1 August 1994

PURCHASE OF LAND ONLY

Purpose

The purpose of this Instruction is to vary the policy regarding applications for a Certificate of Entitlement to purchase a holding and build a dwelling-house on the holding as provided for in paragraph 18(2)(b) of the DSH Act.

Background

Paragraph 18(2)(b) of the DSH Act allows the Secretary to issue a Certificate of Entitlement for a subsidy on an advance for the purpose of enabling a person to purchase land and build a house on it. This provision has always been applied in the sense of requiring that the advance fulfil both functions. Although the advance could be partly applied towards the purchase of land, the remainder of the advance had to be applied towards the actual construction of the house.

In the days when the DSH loan constituted a high proportion of the cost of house and land packages, there was little opportunity for the advance to be used solely towards the cost of the land. Now that the maximum loan represents such a low proportion of the overall cost, some clients are expecting to use the DSH loan in connection with the purchase of the land when they do not intend to proceed immediately with the construction of the home.

We have sometimes discovered, during compliance monitoring, instances where the Bank advanced the loan for the purchase of land where there was no intention to immediately construct a house. Although our initial reaction on discovering these instances might be to consider cancelling the subsidy and recovering what is perceived as wrongfully paid subsidy, in most cases clients have been able to demonstrate their intention to proceed with building within a reasonable time frame. In such cases, we have decided to continue the subsidy. The effect in such cases is that the subsidy commences earlier than it would normally and, therefore, will finish earlier than it would have if we waited until construction had been completed; however, it still has the effect of enabling a person to buy land and construct a dwelling house.

There is increasing pressure from clients for a relaxation of the current requirement. The 1991-92 Entitlement Review also favoured the "land only" option in view of recent experiences, and in particular, it was seen as a way to assist low income earners break into the housing market.

Policy to be applied

We have received legal advice that confirms the view that a Certificate of Entitlement cannot be issued where the client intends to purchase land and not construct a house.

Sub section 18(2) of the Act requires the Secretary to be satisfied that the advance sought is for one of the listed purposes. Note that, reading through to paragraph (b), the Secretary must be satisfied that the advance will enable the client to buy land and build a house.

Provided the delegate can be satisfied that a home will be built within a reasonable time thereby complying with the occupancy policy, the fact that the full amount of the advance will be spent on purchasing the land should not prevent a Certificate of Entitlement from being issued. The approach is to be consistent with the policy on occupancy (i.e. intention to occupy) as set out in Entitlement General Order 3.7.6. The stated purpose in the Certificate will, of course, still be to purchase a holding and build a dwelling-house on the holding.

Each case needs to be treated on its merits. Where it is clear that the client has no serious intent of building a home on the land, the application should be declined. In other cases a positive decision should be made by considering, in conjunction, both the purpose for which the advance will be applied and the intention to occupy rather than considering both as independent issues.

General Orders

Attached is an amended page for the Entitlement General Orders. Please replace the existing page 24 with the amended version. This Instruction has no effect on any previously issued operative COI.

Entitlement GO 3.7.1 has been altered to read:

3.7.1 Purchase of Land

A subsidised loan is not available to purchase land solely. However, where a client genuinely intends to proceed with the building of a home within a reasonable time, a Certificate of Entitlement should not be refused merely because the advance will be applied initially to the purchase of the land only. The decision should be based on consideration of both the intended purpose and the intention to occupy. [Please also see Entitlement GO 3.7.6.]

DAVID MACKRELL

General Manager

25 July 1994