Buying Off-The-Plan: some of the pros and cons explained.

Buying a property off-the-plan has gained great popularity in cities as apartment living and higher density housing is becoming more common as density increases. Buying a brand-new property that nobody has occupied before can be exciting and feel great moving in. It has also historically worked well as an investment strategy.

One thing we do know is that most clients are happy to settle and move in or rent out their new off the plan home. Before you commit to an off the plan purchase, here are some high-level points for you to consider. These have been compiled by our conveyancing lawyers that have helped many clients through their off-the-plan purchase.

There are great pros and cons to purchasing off-the-plan:

Positives to buying off-the-plan

1. The ability to enjoy Stamp Duty reductions in some States, with some states offering Off the Plan concessions and some developer’s even providing stamp duty incentives such as a rebate scheme if you settle on time.
2. The ability to negotiate a good price for the property directly from the developer.
3. You can customise part of your design or make slight changes to the fixtures and fittings in the plan.
4. Take comfort that the property will most likely include a Builders Guarantee covering defects, faults and problems with the building generally within 3 months of completing settlement.
5. Potential for Capital Gains as the value of the property may go up in price before Potential depreciation or other tax benefits.
6. Extra time to save for your deposit as you may only required to pay 5% at signing the contract or negotiate longer time periods to pay the full 10% deposit.

Negatives to buying off-the-plan

1. Potential for Capital loss if the valuation at the time of settlement maybe less than the Contract Price.
2. The development being delayed or not proceeding. The Vendor has the discretion to terminate the contract if they do not anticipate the property to be finished by the registration period. Likewise , a purchaser can terminate the contract if the plan of subdivision is not completed by the registration period, otherwise known as the sunset clause. .
3. Variations to the plan that adversely affect you. Changes to sizes of internal spaces and quality of fixtures and fittings cannot be guaranteed.
4. Loss of time due to construction delays and no set completion time.
5. No guarantee of a quality workmanship in the end product.
6. The risk of not being able to settle due to personal circumstances changing ie health, employment or financial circumstances as the settlement date can be scheduled from 1 year to 5 years or more from the contract date.

It is fun to buy a new home and dream about the possibilities, but off-the-plan has a few unknowns that you should weigh up.

Off-the-plan property contracts are different.

Off-the-plan contracts are usually heavily weighted in favour of the Vendor.  For example, there are usually many special conditions that give the developer the right to be released from the Contract if they cannot obtain approval for the development or finance through to changing the plans and fixtures and fittings in the property.  Most contracts require acknowledgments from the purchaser that are not required in other standard contracts as well.  You may also need consent to on-sell the property before settlement.

Given the complexity of these Contracts it is best to obtain Pre-Contractual Advice.

Finance when buying off the plan

Off-the-plan property contracts are usually not subject to finance. This means you will need to be pre-approved if you intend to borrow money. If your financial situation changes between signing the contract and the settlement date, this could be problematic as you are in an unconditional contract. Note: pre-approvals only last for a limited time.

Interest rates on home loans might move dramatically between when you sign up and settlement. Be sure to speak to your lender or broker upfront and see what you can afford if they go up.

Changes to the Plans

Typically, the developer can make amendments and changes to the plan including the types of materials they use. There is some recourse if the plans have been amended too much under the Section 9Ac of the Sale of Land Act (s9AC). The s9AC has specific requirements and if you are looking to get out of an off the-plan purchase you might be able to use this to your advantage. There are timeframes that apply so if there are amendments to the plan you should get a conveyancing lawyer to check the plans carefully.

Duty Concessions

When buying an off-the-plan property as a first home buyer or your principal place of residence you may be eligible for a land transfer duty concession. This is where the dutiable amount is lower than the purchase price in the contract of sale. This is finalised at the end of the project near settlement.  The vendor will make a declaration and the land transfer duty will be assessed on that figure. There is no way of locking in the land transfer duty concession upfront and property buyers need to be aware of this.

More information can be found here about VIC or NSW concessions.

Practical things to consider

When researching an off-the-plan property you should definitely take into consideration who the developer is. Also get information about the builder they wish to engage and their experience and quality any previous projects.  Evidently you want to know that the builder and/or developer have completed other projects and find out what the quality of these projects are like.

Purchasing a brand new property off-the-Plan can be great, but for some clients they can also be problematic. Especially as the settlement is a long time into the future and circumstances can change.  You should carefully consider your options and the market conditions and expected market trend before committing to the purchase.

It is relatively easy to compare similar properties, but there are a lot of unknowns as to completion date, fixtures, fittings and the quality of the end product. All land contracts are hard to get out of once they are unconditional.

Getting a knowledgeable conveyancing lawyer to help

Our legal experience and advice will help you to make a fully informed decision about the contract you are signing.

If you have purchased off-the-plan and need some legal advice to get out of your contract, please contact our lawyers.  We have successfully helped clients rescind or terminate Contracts and can give you options of how to end an Off-The-Plan Contract.

Occasionally off-the-plan litigation can arise if there is a dispute about defects or contractual obligations. Having a law firm engaged helps to ensure that you can get the right legal advice and respond quickly if need be. This is a main difference between a choosing a lawyer and not a conveyancer. A conveyancer cannot provide this advice and many purchasers need it.

At Conveyancing Depot we help our client to avoid issues and make sure that they understand their rights.