Things to Consider When Buying Property Off the Plan
Buying off the plan is becoming an increasingly popular affordable option. Read our guide to uncover things you should consider when buying off the plan.
Buying property off the plan is a popular way of entering the property market. This is particularly prevalent in large cities where property prices are soaring. However, you may have heard of the many horror stories surrounding buying off the plan. So what do you need to know when buying property off the plan? Read our guide to find out.
Research the Market
As with the purchase of any property, you need to research the market. What stage of the property life cycle is the area you are purchasing? What is the location like? How are the current vacancy rates and demographics changing? These are all questions you should look into.
If possible, visit the location where the property will be built. This will enable you to get a feel of the community. You can also see whether there are any other construction developments nearby that may effect your view. If accessible, you should speak with an expert to determine property values in the area and market conditions.
Research the Developer
Buying off the plan can be notorious for dodgy developers. Do your due diligence. It is imperative to research the developer to ensure they are trustworthy and reputable. Look at their past projects and whether these were completed on time. If possible, visit their previous projects to inspect the quality. Be sure to ask questions regarding what is included in the purchase price. Are fittings, paintings and decorating included?
There is a risk the developer could go bankrupt. It would be beneficial to inspect their financial statements to assess their risk for financial complications and ability to fulfil the development.
Consider the Risks
As with any investment, there are risks. Buying off the plan arguably holds more risk than other investments as you are purchasing an intangible, incomplete property. A falling property market is a major risk in buying off the plan. This means that your property may have been overvalued and you ended up paying more than the property is worth.
Furthermore, you may be left disappointed if the property is not to the standard you expected. The structural quality may be poor, posing future health and safety risks. You should also be prepared for delays in construction. This is very common with off the plan contracts.
As you will probably know, you will need a 10% deposit to purchase the property. It can be difficult to get a loan from the bank as they tend to limit their loan exposure. For instance, most banks will not lend to more than 15 per cent of the properties in a large complex. Apart from the deposit, you may also incur further fees such as legal fees, stamp duty, borrowing costs and body corporate fees.
Moreover, it is worth checking whether you are eligible for government grants. For instance, if you are a first-home buyer, you may be eligible for the First Home Owner Grant. This is a scheme developed in 2000 to assist home ownership in first home buyers. Although rules differ between States and Territories, it is generally only available if you are buying a home that you are planning to live in.
Consult a Conveyancer or Solicitor
As buying off the plan is different to the traditional purchase of property, it is important to consult an experienced Conveyancing Lawyer or Property Lawyer. They can review the contract before you sign on the dotted line. You should ensure the lawyer is independent from the developer.
It is crucial to include a sunset clause in the contract. A sunset clause essentially requires the developer to complete the building by a specified date. If construction is not completed by the conclusion of the time period, you are allowed to walk away with your deposit. However, on the flip side, it allows the developer to revoke the contract. For more information, read our article ‘Your Guide to Off-the-plan Contracts‘.
As of December 2019, the cooling-off period for off the plan buyers is ten days. This is longer than an already constructed property, which is generally five days.
In conclusion, there are a number of considerations buyers must make before buying off the plan. While it can seem like an enticing purchase, buying off the plan entails more risks than purchasing an existing property. However, this is not to say it should never be done. Rather, you should exercise your purchase with caution and be sure to do your research.
Laura is a Legal Intern at Lawpath. She is studying a Bachelor of Laws and a Bachelor of Business Administration at Macquarie University. Laura is interested in Intellectual Property Law and how technology can assist in improving access to justice.