OFF THE PLAN PURCHASING
Buying off the plan is becoming increasingly popular in Australia, as the property market is quite strong, people are purchasing off the plan to ensure they acquire a certain property.
Out of all the conveyancing cycles, buying off the plan typically spans the longest time. With this in mind, there is more inherent risk and should be carefully planned. We recommend people identify a professional legal firm to guide them on this endeavour. This page is designed to educate readers if they are planning to purchase off the plan and familiarise them with the conveyancing process.
Advantages buying off the plan
- Choosing exactly what property you want
- Possible capital growth between the time you purchase and settlement
- Possible depreciation for taxation purposes
Disadvantages buying off the plan
- Possible capital loss between the time you purchase and settlement
- Possible oversupply
- The final construction is impossible to perfectly conceptualise (i.e. natural light or views)
- The developer can make certain changes without your consent (to negate this, the contract should be itemised and very detailed (i.e. bench top material, fly screens type, color schemes, fittings)
- Not clearly knowing what body corporate fees will be long term
By listing more disadvantages than advantages, we are not intending to discourage people from purchasing property off the plan, rather educate them towards a safer transaction.
These inherent risks are always present when purchasing off the plan, as mentioned, partnering with a professional legal firm will be your best course of action. In addition to this, people purchasing off the plan can also perform the following to set themselves up for success
- Researching the construction company. How long have they been in business? Are they well known and have a proven record delivering high quality projects?
- Maintaining awareness of the Contract of Sale. Namely, the sunset clause and how this can be executed (more info in the FAQ below)
- Understanding the sale is typically unconditional. Meaning, the Contract of Sale is binding, and people must ensure their financial and employment circumstances are able to satisfy obligations in the future.
- Understanding you can negotiate on the price
BUYING OFF THE PLAN IN IN NSW - WHAT YOU NEED TO KNOW
To further protect vendors and buyers in this scenario, in 2015 the New South Wales Government passed an update to the Conveyancing Act, the update addressed the situation where some developers may deliberately wait for a sunset clause to be activated, and re-sell the property for a higher purchase price, thus negatively impacting the original buyer (time wasted, conveyancing fees and potentially unable to enter the market).
People are able to view the Legal protections for off the plan property purchasers on the NSW LRS website here, the main features are:
- A vendor must provide at least 28 days notice prior to rescission under a sunset clause. Additionally they must provide an explanation to why this is occuring.
Should the construction not be completed by the sunset date, the buyer is able to withdraw from the purchase without repercussion. In the event the buyer wishes to wait for the construction to be completed, they must provide written consent to extend the settlement.
HOW WE CAN HELP
- Preliminary advice and planning
- Reviewing the Contract of Sale in detail
- Helping you understand your rights in regards to sunset clauses, defects, building size, inclusions and quality assurance
- Helping you understand potential changes to property management, ongoing fees and insurances
- Resolving disputes with the developer
What is a sunset clause?
In short, a sunset clause is a statement in the contract that allows a buyer to rescind the contract if the construction of the property is not completed by the sunset date.
There may be additional terms allowing the sunset date to be extended, so be sure to review the contract carefully.
What happens if the construction does not stick to schedule?
This is a variable situation as it depends what is written in the original contract.
In the contract, there are usually conditions which provide the vendor different timeframes for extenuating circumstances. The vendor may also request the buying party to consent to the extension of the settlement.
Should the development take longer than the agreed sunset date, the purchaser can terminate the contract without repercussions.
Do first home buyers receive a concession when purchasing off the plan?
Yes, first home buyers in NSW can receive a discount.
In terms of concession eligibility towards buying off the plan, there are some complexities that should be considered. According to the First Home Buyers Assistance Scheme, a person must satisfy the following:
“At least 1 eligible purchaser must occupy the home as their principal place of residence for a continuous period of 6 months, commencing within 12 months of completion of the agreement.”
We recommend you liaise with a conveyancer to ensure the timing of settlement synchronises with your movements and you can move into the property at an appropriate date.
Does the building schedule list my prospective property, or just “completion” of the entire construction?
The Contract of Sale should be explicit and state your prospective property (i.e. Apartment 32, Lot 4, 123 Smith St, NSW) and not simply the construction of the entire building.
Buying off the plan - Fair Trading NSW
Legal protections for off the plan property purchasers - NSW LRS