Executive director says the product can be a solid lead generator for advisers
After years of absence from the New Zealand market, DepositSmart is bringing back deposit bonds for Kiwi purchasers. DepositSmart has secured exclusive rights to distribute Australian-based Deposit Power's products to New Zealand property buyers.
The bonds are underwritten by HDI Global Specialty SE with a Standard & Poor's "AA-" rating. They offer property purchasers an alternative to cash deposits of up to 10% of a property's purchase price.
At settlement, buyers simply pay the full purchase price without needing to tie up deposit funds in the meantime.
The company offers two types of bonds: short-term products for settlements up to six months, suitable for established properties including houses, units and land, and long-term bonds extending up to 5.5 years for off-the-plan purchases, properties under construction, or vacant land requiring an extended settlement period.
DepositSmart executive director Kym Dalton said the product addresses a gap in the market for buyers who don’t have immediate access to a cash deposit.
“There's also the circumstance, for longer dated settlements, off the plan purchases, etc., where people may not wish to have their funds tied up for an extended period whilst the dwelling is constructed,” Dalton told NZ Adviser.
Another product for the adviser suite
Since the target market typically has more complex needs, Dalton says that engaging an adviser for deposit bonds is the best way to go. DepositSmart has released an adviser information pack that gives product details, eligibility requirements, required supporting documents, etc.
The qualification process varies depending on bond type and duration. Short-term bonds require either proof of funds to complete (such as loan approvals, KiwiSaver early access evidence, or savings statements) or sufficient property equity - one times the deposit amount in equity for bonds up to $150,000, or two times for larger amounts.
Long-term bonds have stricter equity requirements, scaling from three times the deposit amount for 7-24 month settlements up to five times for bonds extending 37-66 months.
Processing times are relatively quick – short-term bonds typically process within 24 hours of complete applications, while long-term bonds usually clear within 48 hours.
Dalton said the product can be a good lead generator for advisers – notably those who deal with investment and commercial property.
“Applicants or purchasers have to be able to provide confidence that they'll be able to complete the purchase. The most common one being a letter of offer from a lender,” Dalton said.
“Therefore, we consider that getting an adviser involved, early, is the way to go. We'll be suggesting to agents, lawyers and developers that 'handing off' the deposit bond application to an advisor may well be in everyone's best interest.
“So not only is the product of benefit to purchasers who, for whatever reason, don't have access to the 10% cash deposit when entering into the sale and purchase agreement, it is also a potential lead generator for advisers.”
Deposit Power has operated in Australia for over 30 years and has assisted more than 1 million Australians with property purchases.
