Buying off the plan can be exciting, and comes with several advantages:
- You lock in the purchase price at today’s market prices
- You secure a property for a low initial outlay as a deposit of usually around 10% secures the purchase and the entire payment is paid once the property has been completed.
- If the property market grows while you wait for completion, you will gain
- There are tax advantages if you purchase for investment
- Certain states offer bonuses and reductions in stamp duty for buying off the plan
- Newly built properties come with a 7 year guarantee
However, along with the advantages come some risks.
Delayed completion/occupation date
A delay in the completion date doesn’t only mean that you have to find alternative accommodation if you are an owner/occupier, but in the time between signing and occupation, the interest rates may rise, lenders may tighten their lending criteria and the valuation of the completed unit may be less than the purchase price. In these situations you will have to come up with a bigger deposit than you had planned in order to secure a mortgage, or may be faced with larger monthly repayments than budgeted for.
Before signing, research the developer’s reputation and track record for timely delivery.
Contracts – know and protect your rights
In a contract of sale, a sunset clause outlines the amount of time that a developer has to complete the project. A disturbing trend in NSW was noticed, of developers dragging on the completion of projects in a rising market, in order to cancel buyer’s contracts and re-market the units at higher prices. However, new laws have been enacted such that, if a developer does not have a buyer’s consent to cancel a contract under the sunset clause, the developer must apply to the Supreme Court before the contract can be terminated.
It pays to know your rights not just in this, but in all aspects of the contract. It is essential to use a reputable lawyer or conveyancer who is familiar with off the plan contracts to review any contract before you sign.
If you have made any agreement with the developer in terms of changes to floor plan, fixtures, fittings and the like – make sure that these are noted in the contract to avoid any disagreements later.
If fixtures and fittings are included in the contracted price, details should be specified in detail in the contract.
Obtain guarantees of the developer’s financial status and get these written into the contract if possible, to avoid encountering financial complications with the developer. Ask to see the developer’s balance sheet to determine their financial strength as there is a risk that if the developer goes into liquidation before the property is finished you may lose your deposit and other costs.
Make sure that the contract specifies how faults which are identified post-completion will be dealt with.