Numerous real estate Vendor Finance techniques can be used in Australia. Our favourite technique is the Instalment Contract. Instalment Contracts have been used in Australia since the 1870’s. They are a form of Vendor Finance, i.e. the Seller (Vendor) helps the Buyer to purchase the property by allowing a proportion of the price to be paid off over time.
They were initially used buy land developers who subdivided land and sold the resulting blocks, with a small deposit and a payment plan over a number of years. Large parts of well known suburbs, such as North Sydney and Chatswood were sold in the early 1900’s using Instalment Contracts.
The legality of the Instalment Contract was established by the High Court of Australia in 1927 in the case of The Federal Commissioner of Taxation versus Thorogood.
They became popular again in the 1950’s and 60’s when banks became reluctant to lend on housing blocks. During this period it was common for people to buy their land with an Instalment Contract, pay it off over time and then get the bank to lend to build their home.
Since the 1970’s the NSW Dept of Housing has used Instalment Contracts to sell properties to its tenants.
All Australian States, except South Australia, make the First Home Owner Grant available to first home owners, buying an eligible first home with an Instalment Contract.
The Australian Government recognised Vendor Finance when the 2006 Census established that 2.1% of homes in Australia were being bought with Vendor Finance. With the recent growth of Vendor Finance, it’s possible this percentage has grown considerably.