Buying off the Plan

Buying off the plan is becoming an increasingly popular way of purchasing property in Queensland. Buying off the plan means buying property based on the developer’s plan before the property has been built.

Buying a property off the plan has a number of significant advantages for purchasers but it can also have certain drawbacks. There are many issues that prospective purchasers should be aware of before deciding whether or not to buy off the plan.

Off the plan sales have become more prevalent because selling property off the plan is advantageous to the developer. Importantly, off the plan sales make it easier for a developer to obtain funding for the proposed development. This is because lenders tend to favour funding a development proposal that includes contractually binding commitments for a portion of the project. In addition to more easily obtaining financing, another advantage for the developer is that they will have an opportunity to market their proposed development and attract interest in the property before the property goes to market. The marketing can be more cost effective because it can begin while the building is being completed and this reduces the developer’s holding costs.

Buying off the plan can be very attractive to a prospective purchaser. The purchaser gets a brand new apartment. All of the fittings are new and all of the warranties are still valid. In some circumstances, the purchaser may even have some control over the types of fittings, colour, or other specifications.

If you are going to buy property off the plan, a very important consideration is the local property market. Prospective purchasers should develop a sound understanding of local market conditions as trends in the local property market can have a considerable impact on the purchaser. This is attributable to the fact that there can often be a considerable period of time between the exchange of contracts and the final settlement during which time the building is being constructed.

Because of this delay, if you buy property off the plan in a rising property market, the property will already be worth more than you paid for it by the time the property is built. Because the purchaser only pays stamp duty on the value of the property at the time of placing the deposit, the purchaser does not have to pay stamp duty on the value of the final building. Of course if the property market is falling, there is a risk that your property may be worth less than you originally paid for it.

Unfortunately when you buy off the plan, you do not get to see the finished product that you are purchasing at the time you sign the contract and make your financial commitment. This makes owner occupiers somewhat less likely to buy off the plan than investors because many people want to see the space they will be living in before they buy it. Sometimes developers may have a display apartment to give you a better idea of what the property will look like, but it is important to ensure that the fittings in your property will be the same quality as the fittings in the property that you view. Purchasers should ask to see examples of the developer’s work elsewhere, and speak to tenants at the new development to find out whether they were satisfied with the developer’s work.

Purchasing off the plan can involve other risks as well. Sometimes construction problems may cause delays in delivery. Generally, the purchaser is unable to monitor the builder’s progress because there is no contractual relationship between the builder and the purchaser. Rather, the contract is with the owner of the property. In some cases, where there are substantial construction delays, the owner may have a contractual right to pull out of the construction contract. This may leave the purchaser in an unexpected position with limited remedies available.

When entering into an agreement to buy property off the plan, the only tangible proof of what you agreed to buy is set out in the plans in the contract. Because of this, both sellers and purchasers should pay close attention to any changes in the plans and should allow a reasonable amount of time between registration of the plan and the proposed settlement date. The contract should also contain a clause setting out a reasonable defects liability period. Purchasers may also be at risk if the developer goes bankrupt. In Queensland and New South Wales, developers are not required to take out home warranty insurance on large scale apartment blocks.

You should consult a solicitor before signing a contract to buy property off the plan. For most people, buying or selling a residential property will be the most significant financial transactions they make. In order to be confident in your decision to buy property and to ensure that no unexpected costs arise or problems occur, it is important to seek the advice of a solicitor before signing the agreement.

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