Buying Off the Plan – A Good Plan to Get Into the Market?
Buying property “off the plan” can be a daunting exercise for any buyer let alone a first home buyer. At McLaughlin & Associates Lawyers, we specialise in assisting buyers purchase off the plan properties, especially first home buyers. This article will explain what buying off the plan means, some of the benefits and disadvantages of buying under this particular arrangement and the need to get a solicitor involved before you sign a contract.
What is Buying Off the Plan?
Buying property off the plan means entering into a contract with a developer to buy a property before construction has finished or before any building works have even started.
When you buy a property off the plan, developers will often ask you to pay a 10% deposit upfront and request you sign a lengthy, detailed contract which may contain many pitfalls. You should have this contract reviewed prior to signing. We list the benefits and disadvantages of buying off the plan below.
The Benefits of Buying Off the Plan
- Lock in the price – if property prices increase, buying off the plan will allow you to secure today’s price allowing you to potentially make a capital gain even before completion.
- Purchase price discount – If you sign a contract before constrictions begins, the developer may offer you a discount on the purchase price.
- Potential to earn interest on your deposit – you may have the option to have your deposit invested and the interest paid to you at settlement.
The Disadvantages of Buying Off the Plan
- Deposit locked up – your hard earned cash will be locked up until the property settles or either party validly terminates the contract. This can be up to 2 or more years.
- Value decrease – rather than increasing, the value of your property may decrease during the construction period (sometimes 2-3 years). If the value decreases, you may have trouble obtaining finance for the property even though your bank may have previously “approved” finance.
- Delays – almost a given, delays are commonplace for off the plan properties due to inclement weather, trades and building supply shortages.
- Short finance clauses – developers generally give you a short time period to obtain finance (i.e 14 days from the contract date). This is almost impossible to satisfy. Your financier will not loan you money or give you unconditional finance approval until the property is registered and a proper valuation completed. Beware of banks providing “pre-approval” or “conditional finance”. They can be a trap for young players as the devil is always in the detail.
- Hidden fees paid to developers – some developers will sneak in additional fees that you have to pay in certain circumstances. Before signing a contract, it is important to get a contract review from us so we can tell you if fees are payable.
- Sunset Clause – a sunset clause is effectively a clause that puts a deadline on the contract being completed. If settlement has not occurred by the sunset date (legally up to 5.5 years from the contract date) either party can terminate the contract. This means that technically, you and your deposit can be tied into this deal for up to 5.5 years. Thus you may miss the opportunity to purchase another property during this time and if property prices are on the rise, it may cost you dearly.
- Building defects – quite often building defects do not present themselves until a few months or years after completion. It is imperative to ensure there is a defect liability period clause whereby the builder will remedy any building defects. Again, this is something we will check.
As you can see, there are advantages and disadvantages in buying “off the plan”. It is important to do your homework first. Research the developer and the builder. Then, most importantly, before you sign any contract, speak to us first and have us review the contract. We know where to look for the pitfalls and traps. We have helped thousands of buyers purchase off the plan property in Queensland would only be too happy to assist you get into the market.
So, before you sign anything, talk to one of our lawyers today. Do not hesitate to contact our friendly Property Law team on 07 3808 7777 or send us an email at firstname.lastname@example.org.