BUYING OFF PLAN – WHAT YOU NEED TO KNOW

1. Buying off plan

Buying “off plan” can have some significant advantages over buying an existing house. However, there are also a few things that buyers should consider carefully before locking themselves into a contract.

2. What is buying off plan

“Buying off plan” means exactly what it sounds like – buying a property off the plan for that property (and property development as a whole) because it is not yet built. Construction could have started, or the development could be in the very early stages. Developers start to sell as soon as they can because the development depends on them being able to secure signed contracts. Developers will be unable to get their own financing from banks unless they have enough signed contracts to show the bank that their development is solid and there are purchasers locked in.

3. Off plan contracts

A contract for purchasing a property off plan will generally be a lot longer than a standard agreement to purchase a property. A lot of this is to do with the fact that the development may still have a lot of things to sort out, and they need to insert clauses to say so – e.g., the survey plan may still need to be lodged and approved; individual titles for properties may still need to be issued; code of compliance will need to be issued once the building is finished…  And that’s before even getting to the actual construction process. Off plan contracts include what’s called a “sunset clause” which gives the purchaser the right to cancel the contract if the development is taking too long. The clauses are all different, but could be, for example: if new titles for the property haven’t been issued 2 years after the contract was signed, the purchaser can give written notice of cancellation, and still get their deposit money back.
Off plan contracts will also often include different specifications that purchasers can choose between, for things like the paint colours, the carpet, the kitchen bench, the tiling, the splash back… Or “extras” that can be purchased under the contract, like kitchen appliances, bathtub, washer and dryer, EV charger, etc. For some purchasers, it’s a real plus to get some input into the design of the building, without having quite the same amount of stress and decisions to make if they were building a house on their own.

4. Advantages of buying off plan

One of the advantages in buying off plan is having to pay less money upfront – there’s no need for a builder’s report, because the building doesn’t exist yet. It’s easy for those costs to eat into your savings before you even manage to go unconditional on a contract. Deposits also tend to be lower with an off-plan project compared to an existing build. Another advantage is the fact that you are buying a new build. The building will be built to current building standards, and you will have warranties/guarantees on the standard of the build, as set out in the Building Act 2004.

5. Risks of buying off plan

On the other hand, there are of course some substantial risks to be aware of if considering buying off plan. There can be delays that add months to the process, either with construction or with other issues in the development, like obtaining the titles. This can add to your costs before settlement, like if you’re renting, or if you’ve sold up where you were living and need to find temporary accommodation until the build is complete and you can move in. Off plan contracts will allow the developer to substitute materials if they need to, so you may not get exactly what you envisioned when you signed the contract. Developers may need to change materials if there are supply delays or other issues in sourcing what needs to be sourced for construction.
Probably the biggest risk in buying off plan, and the one you’ve likely heard the most about, is with financing. There’s no way to predict with 100 percent accuracy what will happen in the property market from when you sign the contract to settlement. If the value of the property falls, you could be stuck paying the purchase price in the contract even though the property is now valued at 50 grand less than that. You may have been approved for mortgage financing when the contract was signed, but that approval will not last all the way to settlement. If your personal circumstances have changed, or the value of the property has dropped, when you go back to the bank, they may no longer lend you the amount of money you need to settle. If that happens and you can’t complete the contract, you could be out of pocket for the entire deposit or be forced to on-sell at a loss.

6. Risk vs. reward

To manage the risks involved in buying off plan, it will be crucial to carefully review your financial circumstances both now and in the future. You could consider talking to a mortgage or financial advisor about what you can afford, even if your situation were to change drastically. Do some investigating – check out the developer’s previous projects, make sure there are no concerning headlines online about the developer, drive by the project site with the plans and try to imagine what it will look like… A little due diligence can go a long way.
Lastly, off plan contracts can be daunting and contain a lot of legal jargon. It will be important to talk to a solicitor early in the process so that they can advise you on the contract, keep you informed of dates and deadlines, and explain to you your rights and what remedies you have if things go wrong, and you need to cancel the contract.

Contact the friendly team at Wakefield’s Lawyers today on (04) 970 3600 or email info@wakefieldslaw.com.

Brooke McGowan (Solicitor)