Buying Property Off the Plan – Your Ultimate Guide

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How Does Buying Off the Plan Work

When you buy a property “off the plan”, you buy it before it is being built and so sometimes the property may only be at the planning stage. Off-the-plan property includes vacant land, land and house packages, duplexes and apartments. As a buyer, you may have access to a display property to get an idea of what the property you’re buying will look like in the future.

With government incentives, tax benefits, and often cheaper prices, many property buyers have turned to off-the-plan properties. However, like all investments, it takes some research and understanding of what you are buying to know if it’s a smart buying decision. For careless buyers, this seemingly smart investment can turn into a financial nightmare. We’ll ensure it does not.

What Are the Advantages of Buying Off the Plan?

BRAND NEW

When you buy an off the plan Sydney property, you’re buying a brand new property. Since you’re one of the first to pick a property, you have a better chance to pick a good unit before anyone else. If you wait until the construction is complete, only the leftover units will be available. You usually have more flexibility in terms of design choices when you buy off the plan, as the developer may offer you multiple finishes options or schemes to choose from.

FINANCIAL

In addition, there could be significant financial gains for you when you buy a property off the plan. For buyers in Sydney, first time home buyers may be able to save yourself some stamp duty and taxes when buying an off the plan property through government grants and schemes. You can also lock in the price of the property; if the real estate market grows while the property is being built, you’ll end up with a property that is worth more than what you paid for.

Stamp duty and tax schemes are constantly changing, and it is always a good idea to check with the authorities or your conveyancing solicitor on any schemes which are applicable for your off the plan purchase.

Benefits of Buying Off the Plan

Buying off-the-plan has its merits. Here are some of the benefits of buying off-the-plan.

  • Increased property value – When buying off-the-plan, you pay the current market price for the property. In a booming real estate market, chances are the property will worth more when the project is completed.
  • More time to arrange for financing – You usually need to pay a 10% deposit when you buy an off-the-plan property. You won’t have to pay the balance until the property has been built. This leaves you plenty of time to arrange for financing with your mortgage broker or lender.
  • Builder covers losses due to defective work – The builder of the property has to cover any loss that is a result of defective work within a set period of time.
  • Tax benefits – If you are buying off-the-plan properties for investment purposes, you may be able to claim depreciation for certain items, including fittings and fixtures. If you are unsure of your tax benefits, you should speak to your financial or accounting advisor.
  • Flexibility – When buying off-the-plan, since the property hasn’t been built yet, you have more flexibility in terms of colours, layouts, and finishes.
  • First-hand property – You are guaranteed to be the first-hand owner of the property. This is particularly important to first-time home buyers who like the feeling of owning a brand new home.

What Are the Disadvantages of Buying Off the Plan?

CONSTRUCTION AND DELAYS

Like everything in life, there are two sides to a story. When you buy an off the plan property, you can’t move in right away, as it hasn’t been built yet. It may take several years for it to be built, and sometimes you can’t even be sure if the development will go ahead. You could tie up your deposit and future plans for several years.

Also, when buying an off the plan property, you can’t get a feel for exactly what you’re buying. All you have to judge the look of the property is the display home and some marketing materials presented by the real estate agent.  The finished product might not look as nice or as big as you thought.

There may also be delays in construction, where the vendor is not able to obtain finance to complete construction, and outcome of the building may not be what you expected or was told you were going to get.

Make a contingency plan for delays – When it comes to development projects, it’s almost inevitable that they will be delayed. Buyers who expect to move into their new homes on the scheduled completion date will be in for a big surprise when they find out that their new homes are still under construction on the completion date. Make sure that you have a place to live if the project is delayed.

FINANCE

Formal and final loan approvals for off-the-plan property loans can only be generally provided when the property is completed and ready for occupancy. Therefore, there is the risk that during the time between exchange and completion there may be policy lender changes which may make you no longer qualified for the loan required at settlement. There is also the risk that the settlement valuation may fall short of the purchase price due to the market, which in turn may affect your loan.

Moreover, the real estate market could drop, resulting in lower valuation of the off the plan property. When this happens, you may have difficulty getting finance.

Your financial situation might also change after you purchase an off the plan property. For example, you might lose your job, be in debt, marry or divorce, or have a child, which may affect your ability to purchase this property. Whatever happens, you are still obliged to go through with your purchase.

For more details about your loan approvals, it would be prudent to speak to your mortgage broker or lender.

Buying Off-the-Plan Risks & Pitfalls

Buying off-the-plan properties is not without risks. Here are some of the risks that you should take into consideration.

  • Unmatched expectation – Most builders do not allow off-the-plan buyers to see the property until the project has been completed. Therefore, what you have in mind may not be what you end up receiving or there could be substantial defects.
  • Decreased property value – You pay the current market value for off-the-plan properties. There is always a chance that the value of a property will be lowered by the time it has been built. This decrease in market value may cause you some financing problems.
  • Project delays – A development project may be delayed due to various reasons. In some scenarios, projects are delayed for several years, leaving the buyers in uncertainty.
  • Builder cancels project – If the builder runs into financial problems while the project is underway, the project will likely be cancelled.

The Display Property

Most off-the-plan properties offer display homes for viewing. You should check out these display homes to get a feel of what the finished properties will look like. Pay attention to the quality of the fittings, finishes, and fixtures.

You may also want to check out the floor plan of the whole complex to see what facilities will be available. Will there be a gym or a playground or swimming pool? Keep in mind that the more luxuries are available, the higher the maintenance costs.

The Neighbourhood of the Property

When you buy an off-the-plan Sydney property, you should visit the property site and check out the neighbourhood. Does it have all the things that you need? If there are other development projects in the neighbourhood, your view may be affected.

If you’re buying the property for investment purposes, its location could affect its price. You should analyse the local real estate market condition and research the property price in the neighbourhood. It may help if you talk to a local real estate agent.

An Expression of Interest

When you’re interested in an off the plan property, you can make an expression of interest payment or holding deposit to let the developer or real estate agent know that you’re interested. This doesn’t mean that you have to buy the property. The developer or agent also doesn’t have an obligation to “reserve” the property for you. In fact, an agent can accept expression of interest payments from multiple potential buyers, but he or she must disclose this fact to you when you make a payment.

The Contract for Sale

When buying an off the plan property, you must review the contract for sale with your solicitor or conveyancer carefully to make sure you know exactly what you are buying. Things you should consider include:

●    The floor plan of the property;
●    The size of the property including car space or storage space;
●    The size of the rooms;
●    The layout of the property is suitable for your lifestyle;
●    The options you have in terms of colours and finishes;
●   Whether or not you can visit the site when the property is being built;
●    The date the property is required to be constructed by (which is commonly known as the Sunset Date);
●    The adverse conditions (if any);

Developers may make changes to the floor plan and strata plan when necessary. For example, they may change a floor plan to comply with regulations. These changes may change the architectural design or the size of a property. The contract usually includes a condition that allows you to cancel and receive a full refund of the deposit when certain changes to the floor plan may not be to your best interest.

THE REPUTATION OF THE DEVELOPER AND BUILDER

When buying an off-the-plan property, it is also a good idea to check out the quality of workmanship of the developer before you sign the contract. How long have they been in the industry? How many properties have they built? If possible, visit some properties that were built by the developer to check out the design and quality and talk to some previous buyers to see if they are satisfied with their properties.

If the developer is not the builder, you should make sure that the builder of their off-the-plan property has a proven track record.  Most builders do not allow buyers to visit their properties during construction.

Therefore, you should visit the display property to make sure that it is what you have in mind. An off the plan conveyancer should be able to help you with this.

LEGAL ADVICE

It is quite common for off the plan contracts to be lengthy, large in size and complex.

Before signing off on a contract to buy an off the plan property, it is particularly important for first time off-the-plan buyers to seek advice from a property lawyer or Sydney conveyancer who is experienced in off the plan conveyancing. An off the plan lawyer will go over the contract to make sure that everything is in order and answer any question that you may have. Some of the questions you should ask an off the plan lawyer include:

  • Will the deposit be refunded if the development is cancelled?
  • What types of defects are covered by the builder?
  • Can the property be sold to another party before it is completed?
  • Is the builder allowed to substitute fittings and finishes?
  • Will the developer fix defects identified after settlement?
  • Can I sell the off the plan property before completion?
  • What will happen if I cannot get finance approval?

DEFECT RECTIFICATION

Most contracts for sale include definitions of major and minor defects:

  1. Major defects typically refer to serious defects, such as structural damages, that make the property uninhabitable; and
  2. Minor defects refer to defects that are less serious and don’t affect you living in the property.

In most cases, developers are required to fix all major defects before the settlement date. If this doesn’t happen, buyers may delay settlement until the defects are fixed. As for minor defects, buyers usually have a period after settlement within which they can report these defects. Developers may fix these minor defects in a timely manner, once they have been notified by the Purchaser of the defects.

Some purchasers may obtain the services of an expert building inspector, who thoroughly inspects the off the plan property for any defects and provides a Post Completion Report outlining the defects with photographic evidence. The Purchaser may provide this report to the Developers for the purpose of defect rectification.

Some issues that are not considered defects are, for example, normal maintenance, normal wear and tear, minor shrinkage and minor settlement cracks. Natural finishes and indentations in stone and wood are also considered normal.

Your experienced conveyancing solicitor should make sure that the contract contains clauses that handle dispute as to whether an item is considered defects. For example, you may request that an independent expert be hired to assess an issue when there is a dispute.

THE SUNSET DATE

When you buy a Sydney off the plan property, the contract for sale should include a Sunset Date. This is the date by which the developer must complete the terms of the contract. However, sometimes the contract also contains clauses that allow the developer to extend the sunset date if necessary. For example, a developer may extend the sunset date if the building materials are unavailable, delay caused by an Authority, inclement weather or conditions and others.

If the developer cannot complete the terms of the contract by the sunset date, you may be able to rescind the contract and receive a refund of the deposit. Some developers may specify a cancellation deadline by which buyers can rescind a contract. If you don’t rescind the contract before this deadline, you may have agreed to waive your right to rescind, and you will be compelled to continue with the purchase.

Your conveyancer or property lawyer should always make sure that the contract includes a condition that allows you to rescind the Contract, should construction or anything required by the Contract is not be completed by a certain date.

To understand more about developers rescinding an off the plan contract under the sunset date, you can read our blog HERE.

Documents Commonly Included in a Contract for Sale

DRAFT FLOOR PLAN

Most contracts will include a floor plan of the property.  It is a document showing from a bird’s eye view the configuration of the property such as the location of main bedrooms, kitchen, closets, pantry, toilets, living room, walls, balconies and the like.

DRAFT SUBDIVISION PLAN AND STRATA PLAN

The subdivision plan shows the outline of the land you are purchasing or the land which the strata building will be constructed on.

The strata plan shows the outline of the unit you are purchasing in the building constructed on the land.

SCHEDULE OF FINISHES / COLOUR SCHEMES

The contract for sale of an off the plan purchase often includes a schedule of finishes that describes the items to be included at settlement. For example, kitchen appliances such as stoves, bathroom finishes, and floor coverings. Sometimes, the developer may offer you various colour schemes and options. You should review the schedule of finishes with your Sydney conveyancing lawyer to make sure that it is clear and complete.

There is usually a clause in the contract that gives a developer the right to substitute finishes or items when the original finishes or items are unavailable. The quality and value of the substituted finishes and items should be equivalent to those of the original items.

HOME OWNERS WARRANTY INSURANCE

When working on a residential property with three storeys or less and contains more than two units, the developer should take out a Home Owners Warranty Insurance on the property.

This insurance provides protection for the buyer against non-completion of the work and other breaches of statutory warranties related to the work. The developer must provide a copy of the certificate of insurance in the contract.

SECTION 88B INSTRUMENT

Another common document that is attached to a contract for sale of an off the plan property is the Section 88B Instrument. This document describes any restrictive or positive covenants, easements and rights of way that may affect the property. These restrictions are imposed by the local Council and the developer must comply. If you don’t agree with any of the restrictions, you may want to think twice about the property you’re about to purchase.

BY-LAWS

By-laws are rules that regulate a homeowner’s rights and obligations during the occupation of the property, and they apply to strata properties, such as an apartment unit.

For example, the by-laws may not allow you to keep a pet at the property.

OCCUPATION CERTIFICATE

An Occupation Certificate issued by local Council certifies that the property may be occupied.

Control of the Owner’s Corporation

Most contracts for sale of off-the-plan for the purchase of strata properties contain terms that allow the developer to control the Owner’s Corporation for a period of time after the completion of the development project. By having control of the Owner’s Corporation, a developer can perform further development work or conduct selling activities after settlement.

If you have purchased an off the plan purchase for strata, it is a good idea to understand and know about living in a strata community.

Buying Off The Plan Process

Before you settle your purchase, you should inspect the property thoroughly to ensure that there are no major defects. It’s best to hire a professional building inspector to perform a final inspection. Once settled, the risk of damage to the property is transferred to you. Therefore, you should insure the property before settlement, or as soon as settlement takes place.

You usually don’t need to be present in person to settle the purchase of a property. However, you should make sure that you have reviewed all the documents with your solicitor before he or she settles the purchase on your behalf.

When the settlement is complete, the financial institution with whom you have your mortgage will register the Transfer and file a Notice of Sale at the NSW Land and Property Information. The Certificate of Title will be held by the financial institution until you pay off your mortgage.

Want to know more about what happens on the Settlement Date? You can read more about settlements HERE.

Things You Should Consider When Buying Off-The-Plan

There are many pros and cons of buying off-the-plan properties and this guide provides some useful tips to keep in mind. On one hand, you may be able to get a good deal when you buy off the plan in a rising real estate market. On the other hand, it may take several years for the construction to complete. It’s important to perform due diligence before you make your decision.

Before you sign the contract for sale of an off-the-plan property, review it carefully with your Sydney property lawyer or conveyancer. Make sure that you understand your rights and responsibilities.

Why Choose Unified Lawyers as for your Off the Plan Purchase?

  • Professional and experienced in Off the Plan Sales and Purchasers all over Sydney.
  • Excellent communication and responsive.
  • Competitive fixed pricing.
  • Experts in complex Off the Plan Contracts.
  • Guidance, attention to detail and prompt handling.

Our client’s testimonials and reviews about Unified Lawyers are a testament to the conveyancing services we provide. Have a read of the conveyancing testimonials and be sure that you are in good hands.

DISCLAIMER:  The content of this publication does not constitute legal advice and is intended only to provide a summary and general overview.   We do not guarantee that it is current.  You should seek specialist legal advice or other professional advice about your specific circumstances.  Your access to this publication is not intended to create nor does it create a solicitor-client relationship between you and Unified Lawyers.