Top 7 Considerations for Buying Property off The Plan
What does off the plan mean?
When a new property is being built, whether it is units or new houses, often a developer will seek to sell properties prior to completion. Essentially you are entering into a contract before:
- Construction of the building is complete; or
- The registered title to the lot has not been created.
Developers sell properties off the plan for a number of causes but the two main reasons are:
- To show their bank or financier that they have the requisite buyers of the completed properties to give comfort to the bank or financier that the end development will be sold; or
- To give the developer the confidence to know that buyers will purchase the end products.
Often entire developments are sold off before they are completed.
However given the many variations and the uncertainties of the construction process, laws in Queensland obligate the developer to provide detailed disclosure as to what they are building and providing to the buyer. This also protects buyers who may not be aware of the different variables to ensure that the most important factors are disclosed.
What to look out for?
As with the purchase of any property where you buy a property off the plan you need to have a clear understanding of what you are buying. The contract will set out the terms of what you are buying and there are a number of factors to look at including:
1. The Plans
Whether you are buying a block of land, a unit within a small or a unit within a large complex it is very important that you know exactly what you are purchasing. The contract must attach plans which set out what is being constructed so that you can get an understanding. These plans are allowed to change by no more than 5% from the final constructed building otherwise you may have the option to get out of the purchase. In particular when you are buying a block of land to construct a house on you need to consider if there are any easements or other restrictions on what you can build (including building covenants). Make sure that you check these out in detail and if you are unsure that you ask the developer for more information.
2. The Surrounding Area
We always strongly recommend that you visit the construction site to see the surrounding areas, potential views, local amenities and other facilities. These are important as they will help you understand the location of where you are buying.
3. Approvals of The Plan
Depending on the type of construction and the contract, you may enter into an agreement before all of the required approvals are in place. When we use the term approvals we are talking about the local council and certification approvals that any new construction needs to have in place before it can be occupied. It is important that you consider this because if an approval is not in place then there may be an unreasonable delay to the construction which is outside the developer’s control.
4. Construction Timeline
Generally when you inquire with an agent or developer in relation to buying a property off the plan, they will generally give you an idea of when the development is likely to be completed. Pursuant to the law in Queensland each contract must have a sunset date, this is the date by which the construction is completed otherwise either the buyer or the seller can terminate the contract. However before you sign the contract to purchase you should see that the sunset date is not an unreasonably long time (it can be no longer than 5 and a half years).
5. The Property Value
You should always engage the services of a valuer to advise you if the purchase price you are paying for a property is market value.
6. The Deposit
When entering into an off the plan contract in Queensland a developer can take a deposit of up to 20% of the purchase price. This money must be held in a trust account. However you need to consider the actual sum of money and the length of the construction as you will not have access to those funds from when you sign the contract until when the purchase settles (after registration of the separate title with the titles office).
7. The Purchasing Entity
When entering into the contract to purchase the land it is important that you have the correct entity as the buyer of the contract. It is impossible to change it later without the consent of the developer which may or may not be given (sometimes if the value of the property has increased a developer will agree to change the purchasing entity for a higher price). This is an important consideration to take.
These are the most important considerations that you are buying a property off the plan. You should always seek advice on these issues and ensure that you are satisfied with what you are buying. Streten Masons Lawyers always recommends that if you feel something is not right with the contract you immediately consult a professional.
When buying a property off the plan often a contract will be subject to finance for a period of time after the contract is signed. You should be aware that when you are buying a property off the plan that any financier will make any finance approvals subject to a final valuation. In other words the bank will not guarantee you that they will fund the purchase as they want to ensure that what is being purchased is worth what you are paying for it.
It is uncommon for the finance condition to continue post construction as the developer will not want to take the chance on the banks valuer reducing the value. Therefore if you decide to buy a property off the plan you should satisfied and confident that you will be able to finance the purchase and be aware of the risks that you are taking.
Buying a property off the plan is an exciting venture but as with any investment you need to make sure that you do all of the due diligence correctly. At Streten Masons Lawyers we have extensive experience in reviewing and advising buyers of off the plan properties (as well as acting for developers on the other side) of their rights and obligations. If you would like further assistance please contact Jeremy Streten on 07 3667 8966 or Jeremy@smslaw.com.au.