Buying an “Off the Plan” property simply means buying a house, unit or apartment before it has been constructed. In recent times there has been a huge increase in the number of “Off the Plan” purchases due to skyrocketing numbers of apartments being built in Australia’s capital cities, combined with a favorable tax environment when buying “Off the Plan” as compared to purchasing an already completed dwelling. Part 1 of this article will deal with the risks of purchasing a property “Off the Plan,” while Part 2 will focus on some of the advantages of doing so. So what are the major risks of buying “Off the Plan” and what should you do if you want to move forward with this option?
The risks when buying ‘Off the Plan”
There are a number of significant risks that are taken on by the purchaser when buying property “Off the Plan.” These include:
The final product is unknown. Despite the substantial detail that is usually contained within an “Off the Plan” sales contract, there is still a large degree of ambiguity surrounding precisely what the finished property will be like. Some of this ambiguity is born out of necessity (ie. flexibility to change certain aspects of the design in the event of a local council rejecting some features of the property,) while on other occasions purchasers may simply be disappointed by the quality of the fixtures and fittings within the property or they are not how the purchasers imagined they would be.
There is potential for large delays. Anyone who has had involvement in the construction of property will know that it can often be subject to lengthy delays, due to the complexity of the projects and large amount of parties and stakeholders involved. As a purchaser of a property “Off the Plan,” the exact date that the property will be completed can vary across years. Compounding this issue, the balance of the purchase price (ie. the full price less the deposit) becomes due once the property is completed. Changing market conditions including lending practices, property prices and the legal landscape can all contribute to a situation in which quickly acquiring the necessary finance for the property may be difficult.
The developer may go bankrupt. With an “Off the Plan” property, the developer is usually incurring huge costs without the possibility of recouping them for many years. If unexpected delays occur, there is a very real possibility that the project could fall through altogether, putting the purchasers’ deposit (and time) at risk.
Complex contracts. Due to the level of detail that is required in an “Off the Plan” sales contract, the contracts can often be extremely complicated and voluminous. This complexity can often create a situation in which the average buyer may overlook crucial clauses regarding the treatment of defects in the property, cancellation of the contract or rights of the owners after completion, which may be buried deep within the fine print.
Subdivided lots. In the case of purchasing a property from a subdivided apartment complex, Issues often arise in which purchasers are not fully aware of their rights as compared to other Lot owners in the same development (ie. exclusive use of some common areas only for certain Lot owners or unequal voting rights at Owners Corporation meetings.) Most people would assume that they have equal rights in making decisions and using common facilities, but unfortunately this is not always the case.
Conclusion
As can be seen above, the devil is in the detail when it comes to purchasing property “Off the Plan.” Buying “Off the Plan” has some significant disadvantages compared to a traditional purchase of a completed dwelling. While it is impossible to mitigate all of the risks when purchasing “Off the Plan,” seeking legal advice before signing a contract is an essential step in minimizing the risks that you are exposed to. Nevertheless, buying “Off the Plan” does also present some advantages as compared to the traditional method of purchasing property; these will be discussed in the second part of this article. If you are considering purchasing a property “Off the Plan”, or have any questions about this article, please get in contact with us on 03 8877 6888.
Disclaimer: This article contains general information only and is not intended to be a substitute for obtaining legal advice.