As Australia’s demand for residential land and housing increases, purchasing an off-the-plan house, unit, or townhouse is becoming an increasingly attractive option for homebuyers. But buying off-plan can be daunting for first time homebuyers.
Off the plan property sales often occur through non-standard contracts that differ from the standard REIQ residential contracts typically used in most property transactions. An off the plan contract may be prepared on behalf of the developer by their solicitor; this can increase costs and risks associated with purchasing an off the plan property. It’s essential to fully comprehend these differences so as to be informed of both risks and costs involved with an off the plan purchase.
As soon as you sign a contract of sale for an off-plan property purchase, it is likely that you will require financing in order to pay both its price and deposit. Since settlement may take time and increase outgoings such as interest on loans, rates, land tax and body corporate fees.
Before buying off-plan, it is also crucial to investigate the track record of both developer and builder. You can do this by speaking to former buyers, researching media reports or visiting completed projects. Seek independent financial advice as soon as possible in order to assess your borrowing capacity, eligibility for stamp duty concessions and best loan structures available based on your individual circumstances.
An additional risk associated with purchasing property off plan is that, upon completion, it may not meet your expectations. For instance, building completion could take longer than expected or your unit could be smaller than contracted size – all due to many contracts permitting sellers to make “minor” changes without consulting you or seeking your approval; these “minor” modifications could even be subject to a sunset clause that forces completion within a specified timeframe or else you can terminate the contract altogether.
Recent concerns prompted the Queensland Government to pass laws altering sunset clause rules for off the plan contracts of sale in community titles schemes (ie apartments/units). These reforms, set to come into force on 22 November 2023, aim to strengthen protections for homebuyers. This includes providing that developers cannot terminate contracts containing sunset clauses without prior written approval from buyers or court orders, and deposits paid under off-the-plan contracts are held in trust accounts that can only be released at settlement time. This amendment to Queensland law represents an improvement over current practices that allow developers to access deposits before settlement has taken place, which was welcome news to buyers. However, the Queensland Government plans on revisiting these reforms within one or two years to assess if any further adjustments need to be made.
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