What is an off the plan purchase?
Generally speaking, when you purchase a property “off the plan”, you are purchasing a property that is not yet built, but is being proposed to be built in accordance with plans that have been drafted by a surveyor, and which show what the proposed property will look like by way of designs, drawings and renderings created by an architect.
Oftentimes, there is a large parcel of land which is being subdivided into smaller lots, and as part of your purchase you are agreeing to buy a piece of land which has not yet been allocated its own lot number on which your property is proposed to be built.
Before making a decision to purchase a property off the plan, it is important to know what is involved so that you can make an informed decision.
Often people are drawn towards purchasing off the plan because they may be able to have creative input into the design of the property, or the different types of fixtures and fittings that will be installed. Another factor is that when purchasing off the plan, the price being paid for the property is sometimes considerably less than what one would pay for a property with similar size/specifications/location that is already built, thus offering significant cost savings for those savvy investors.
The Queensland Government also regularly offers stamp duty discounts and significant grants of money to those purchasing new homes or building new homes (subject to eligibility criteria and other terms and conditions) which can be a strong incentive for people to purchase off the plan properties.
However, with increased reward comes increased risk, and there are some pitfalls that may arise when purchasing a property off the plan that are not present when purchasing a pre-built property.
For example, when purchasing a pre-built property, you are able to inspect it in detail by having a building and/or pest inspection undertaken by a specialist to determine if there are any issues with the property, and you can physically see what you are purchasing. Contrastingly, with an off the plan purchase, you are buying something that doesn’t exist, and as such there an increased likelihood of the property ending up quite different from what you expected style-wise or design-wise, in addition to the possibility of having the size of your lot altered or the value of your property being diminished by something outside of your control.
Further, there are various other factors which need to be carefully considered when purchasing off the plan. Generally speaking, off the plan contracts feature an extended sunset clause which gives the developer a substantial time period (usually at least three (3) years but can be even more) within which to complete the constructions works and create the title to the lot. There are also various ways that the developer can extend this timeframe due to external circumstances (such as inclement weather etc) and buyers often have no choice but to go along with these extensions.
In the time between signing a contract and the date of settlement, a number of things can change. The property market and the value of properties can fluctuate dramatically, personal circumstances can change and you may no longer wish to be tied to a particular area some three (3) years down the track, you may also miss other opportunities that may arise during that time because your money is tied up in the off the plan purchase even if it doesn’t end up proceeding (large deposits are usually paid when signing the contract).
Similarly, developers can face issues with funding and financing large projects and there is always a risk of them becoming insolvent or going bankrupt before the property is completed.
Further, if you are a buyer that is needing finance to purchase the property, it is important to be aware that off the plan contracts can trip you up in ways you didn’t expect. Most banks or financiers issue a loan approval that is valid only for a short period of time, such as three (3) months.
It goes without saying then that if you are requiring finance to complete your purchase, and settlement of that purchase does not occur until some 3 years after you have signed the contract, that many things in your life may have changed which can affect your ability to borrow money from a bank.
If you have lost your job or other personal circumstances have changed, or, as we have all seen this year with the Corona virus pandemic, an unexpected issue arises, this can also affect your financial circumstances and you may not be eligible for a loan at that time.
Unfortunately if this is the case and you are unable to complete the purchase, you will most likely still be bound to complete the contract, which leaves you open to a risk of losing any deposit paid and being sued by the seller for damages, which may include but is not limited to lost opportunity, interest, legal costs on an indemnity basis and any loss on the resale of the property. The seller’s damages could be significant.
Our property law team at Affinity Lawyers are experienced in dealing with off the plan contracts and can provide you with succinct and thorough legal advice tailored to your individual circumstances. If you are considering purchasing a property off the plan, then book in to see one of our lawyers today to discuss your matter on 5563 8970.