Buying off the plan can be an attractive option for buyers looking to secure a new home or investment property. In this article we explain what it means to buy off the plan, the advantages, and what you need to consider when purchasing a property in this manner.
What is Buying off the Plan?
Buying off the plan is purchasing a property from a developer where building has yet to be completed or before building works commence. Off-the-plan properties could include houses, apartments, townhouses and vacant land.
Advantages of Buying off the Plan
- The price is locked in – buying off the plan allows buyers to secure a property at today’s prices. If property prices increase, you potentially make a capital gain before completion.
- Customisation – buyers can have the ability to choose finishes, fixtures and fittings and in some instances make changes to the property to suit their specific needs and preferences.
- Deposit – you pay a deposit to the developer and pay the remaining balance on completion of the property. This means you will have more time to save before settlement while the property is being built.
- Potential to earn interest – if you pay a cash deposit, the developer may invest the deposit in an interest bearing account and you receive the interest earned upon completion of the contract.
Things to consider before buying off the plan
Contract
Off the plan contracts are usually more complex than standard contracts used for established properties and are generally written to favour the developer.
When entering into an ‘off the plan’ contract, you should always get legal advice before you sign or pay a deposit so you understand the terms of the contract and what they can mean for you.
Delays & the Sunset date
Delays often occur in off-the-plan projects due to many variables such as trade issues, building supply shortages and inclement weather.
The contract will have a sunset clause which will state how long the developer has to complete the project, which can be up to a maximum 5½ years from contract date.
Financial Approval
Financiers may offer conditional approval (finance in principle) for off-the-plan purchases before construction commences. However they won’t provide you with formal finance approval until the property is built, they have performed a valuation of the finished product and re-evaluated your financial situation.
Contract Termination
Sometimes developments do not go ahead due to factors such as not obtaining satisfactory pre-sales or approvals, or there are issues with the project’s financial viability. The contract will detail when a contract can be terminated by you and the developer, and what happens with your deposit in the event of termination.
Building defects
Defects with the property may not arise until after settlement.
A defect liability clause in the contract requires the Seller to repair any defects that occur within a set time period after settlement. You should be aware of how long you have to notify the developer of defects and seek to extend this to at least 6 months before signing.
The Property Team at Plastiras Lawyers experienced with off the plan dealings including acting for buyers and developers in residential, commercial and vacant land subdivisions.
