Tips for Buying Off The Plan
as published in raywhitemaroochydore.com.au
So you are thinking of buying a property and it just so happens to be off the plan! (Meaning it is not yet built). So what does this mean to you? No doubt you have heard good and bad stories, so we thought we would explain what it really means and perhaps even dispel a few myths!
What is buying off the plan?
Buying off the plan involves securing a property using a contract of sale on an unconditional basis before the building has been constructed or completed. Mostly likely you would have been supplied with various plans and images that provides a representation of what the finished product will look like. Although it may feel different buying a property without ‘walking through it’, almost all new apartment buildings are sold in this manner, so it is a very common way of buying property.
Expression of Interest and Holding Deposit
Once you have made the decision on which apartment within the project you would like to purchase, you will be asked to sign a document called an Expression of Interest. This document outlines all the basic information for you to secure your new apartment and is used by solicitors to prepare the contract of sale. The Expression of Interest document is generally always supported by an initial deposit that is payable to ‘secure’ your apartment. This effectively shows your commitment as a purchaser to the apartment, it is then the developers responsibility to prepare the contract of sale and send to your solicitor for review. This also gives you time to work through all the detailed plans and schedules of finishes for your selected apartment to ensure it is precisely what you are wanting or make changes. These changes are called variations, and can be included in the Contract of Sale.
Contracts
The contracts that are used in the off the plan sales are much more detailed then the traditional REIQ form of contract that agents use in the everyday sale of established real estate. These contracts are always prepared by the developers solicitor and provided to your solicitor for review before signing. In most cases solicitors who have a thorough understanding of off the plan contracts will review a contact on your behalf in a matter of days and then provide their recommendations.
The Unconditional Contract
The developer will be seeking ‘unconditional’ contracts during their pre-construction sales campaign. This is a requirement of the lender, because they collectively form part of the necessary guarantees that the bank requires before it can fund the construction of the project.
Paying the Deposit
All off the plan contracts will require the purchaser to pay a 10% deposit of the purchase price.
As a purchaser you generally have two ways to pay the deposit:
Money / Cash
It will be held securely in the seller’s solicitors trust account. Only being released to the seller/developer on the successful completion of the project.
Bank Guarantee:
Many buyers choose to provide a bank guarantee. Often favoured, it will ensure your actual monetary funds are left in your account or other investments providing you a better return.
Sunset Clause
It is standard practice that all off the plan contracts include a sunset clause of 3.5 years. This clause is inserted for the benefit of the buyer so that it requires the seller to complete the project within 3.5 years of the buyer signing the contract. This condition is also a requirement of the bank who maybe funding the project. Should the project not be completed within 3.5 years, then the buyer has the right to either terminate the contract or sign an extension with the developer.
Settlement
With the exact settlement date unknown for off the plan purchasers most contract provide a special condition where the developer will give you the buyer 14 days notice once the building is complete and titles are issued from the local government authority. It is also common practice for the developer to provide regular construction updates throughout the build phase so all purchasers will be well kept well up to date with the proposed settlement time frames.
Some Common Questions
Can I sell before completion?
Yes you can. We all know that situations can change. The best way to do this is to contact your agent/developer directly and together you can work out how to do this.
How do I get a finance approval for an off the plan contract?
We recommend you consult with a Mortgage Broker who can assess your position with the view to achieving a finance approval. Lenders generally only provide a finance approval for up to 90 days. This works well in the everyday purchase of existing property, however off the plan properties generally take a lot longer, considering the construction timeline. Therefore we suggest getting some good advice from a Mortgage Broker. The reality is that once you understand your financial position; you also need to be confident that your financial position will not change between the time you sign the contract and settlement of your property, as this can possibly affect your ability to raise finance.
What if the project doesn’t happen?
If the project is not completed prior to the end of your sunset clause, then you have the right to terminate the contract with your full deposit refunded to you without deduction
6 Advantages of Buying Off the Plan
Price: Developers generally sell off the plan apartments at a slightly reduced rate compared to established property. It is often much more cost-effective to purchase properties at this stage to avoid the larger price tag assigned to properties that have been constructed.
Bespoke Design: Most developers allow some level of personalisation for purchasers who secure their property off the plan. This means as a buyer, you will get exactly what you are looking for and make cost effective changes that are much easier to achieve during the build phase as opposed to after completion.
Timeline: Properties bought off the plan have an extended settlement period. While you pay a deposit to secure the property, you only settle and pay for it when the apartment has been built. There are no progress repayments in buying off the plan (unlike building a house). This gives you plenty of time to research and secure a suitable loan arrangement. If you use a deposit bond rather than an actual monetary deposit, you also have the added benefit of earning interest on the deposit stored in your bank account until settlement.
Capital Growth: Due to the often extended timeline to settle, you can take advantage of rising market prices. Therefore the extended time frame from when you sign the contract to when you actually settle and pay for your apartment may allow for instant equity to be retained in your property on settlement.
Depreciation: If you are an investor, then buying new property allows you to claim property depreciation as a tax deductible expense.
Warranties and Guarantees: New properties boast the advantage of minimal mid-term maintenance as appliances are generally covered by a manufacturer’s warranty for the first 24 months, and most buildings are covered by a builder’s warranty for 7 to 10 years.
Tips for Buying Off the Plan
Buy from a reputable developer and/or builder. Ensure the developer/builder has a solid reputation within the property industry and review some of their recent projects.
Research your Schedule of Finishes. Ensure you are buying quality and getting what you pay for.
Location. As with any investment property, location is the key to success. Look for proximity to the beach, shops and cafes and easy access to public transport.
Floor Plan. Assess your floor plan a number of times to ensure it is what you are seeking. If you are buying an investment then look beyond the price tag and size of the apartment. Sometimes a 70 metre squared apartment might be more profitable than one that is 80 metres squared if it makes better use of space. While these two apartments would command similar rent, the smaller one is likely to cost less at the time of purchase and therefore will be a more lucrative investment.
