"Off the plan" property purchase - things to consider

By Balben Property Transfers

Purchasing property “off the plan”, that is, before construction has commenced, has become a popular choice for many Australians.

In Victoria, there are a number of advantages in buying property at this preliminary stage.

You generally pay less than the market value for an existing property. It is financially advantageous for developers (or builders) to obtain strong pre-sales before they start to build and they offer a good deal because their financial risk is reduced. Usually they can sell most of the properties in the development prior to construction, so they know how much to expect on completion and financial institutions are more willing to lend them money for the project.

  • You pay only a fraction of the full stamp duty otherwise payable. For example, you would save approximately $9000 when purchasing a $240,000 property “off the plan”. This saving only applies to new properties purchased “off the plan” and only in Victoria;
  • You pay a 10% deposit upon signing the contract (held in a solicitor’s legislated trust account for safety and bears interest usually divided equally between purchaser and vendor on completion) and stamp duty within 3 months. You need only pay the balance of the purchase price when construction is completed, giving you extra time to maximise and organise your financial affairs, and perhaps sell your existing home without the need for costly bridging finance;
  • You can “lock-in” the fixed purchase price and secure the property at today’s prices, even though completion may not be for a year or more. In a rising market, this can mean large capital gains before you move in;
  • You can qualify for more significant depreciation tax savings compared with those available on existing buildings if you purchase for investment purposes. Such tax benefits include depreciation on the building, furniture, fixtures and fittings;
  • You may be able to choose from a range of floor plans, internal colour schemes, quality finishes, and upgrades on fixtures and fittings.

But buyer beware! With these advantages also come disadvantages, the obvious one being that you must hand over your money for something that is not yet built. Before signing a contract and committing funds, it is imperative that you do some research on the proposed property, carry out inspections, ask plenty of questions and seek professional advice. This will help you ensure that you know what you are getting, you are dealing with, and the terms of your agreement.

Here are some of the most important issues about which you should be aware before purchasing “off the plan”:

Enquiries and Inspections

In purchasing “off the plan” you must rely on the reputation, honesty, goodwill and the financial security of the developer.

Research the developer before you sign the contract. Find out how long they have been in the industry and how many projects they have previously built. Ask if you can inspect similar properties that they have built so you that can see the quality of their finished work.

Check with builder’s licensing authorities to see if complaints have been lodged about the developer.

If the developer goes under before the property is finished, you may be left with nothing to show for your deposit, conveyancing and other legal costs. Ask to see the developer’s balance sheet so that you can see determine their financial strength and their ability to deliver their promises.

Carefully inspect any display homes, models and plans of the property you intend to purchase. Investigate the details, the fixtures, fittings and finishes.

Note that while it is possible to make a quick capital gain on your purchase if the value of the property rises between when the deposit is paid and the time for settlement, you are also vulnerable to market fluctuations, oversupply and interest rate rises. These can all cause the value of the property to fall over time. You should find out how long the development has been on the market and check with local real estate agents to see what the property values are like in the area in which you intend

The Contract

“Off the plan” contracts can be complex documents and may contain unexpected provisos and clauses which can be to the detriment of an uninformed purchaser.

Balben Property can examine the fine details found in the contract. We can also identify whether there are any important omissions from the written agreement.

The contract should fully disclose all charges. You should be aware of whether there are any hidden charges or any other ways that the purchase price may increase.

The contract should clearly specify the cost of upgrading fixtures and fittings if you do not like the standard ones. It should also include carpeting, painting, window dressings, and possibly appliances. Make sure whatever has been discussed on these matters of detail, like particular brands of fittings, are stipulated in the contract.

The contract should require the developer to commence construction within a specified time. It should also contemplate the remedies available to you if construction is delayed and whether there are any penalties for late completion.

You should determine whether you have any remedy or there is dispute procedure is in place if the developer has misrepresented the property or you are dissatisfied with the completed product.

A copy of the draft Strata Plan (showing the lot and any garage, car space, or storeroom), a copy of the approved plans and specifications and a description of the “title” proposed to be registered should all be included in the contract.

As you can see, before purchasing property “off the plan”, you can do some of the groundwork. However, like with any property transaction you should seek the professional advice of the team here at Balben Property Transfers.



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