Off the Plan Purchases:
what are the dangers to look out for?
When buying an existing property, you know what you are buying. A pre-built construction is a physical investment that you can walk through and discuss any future planning with ease. When you buy a property off a plan that has yet to be built it is an entirely different scenario, and requires careful planning to avoid the pitfalls of an unprepared investor. Buying a property off the plan requires a different set of rules and considerations than buying an existing property. The law sets out a number of different requirements that a seller has to disclose to a buyer of an off the plan property to ensure that the buyer knows what they are buying.
There are several elements you need to consider before buying a property, such as:
What entity are you purchasing the property in?
This is a very important consideration to make before you actually sign the contract. It is essential that you have spoken to your accountant or lawyer in relation to this to ensure that you can utilise the purchase in the most tax effective way.
Have you made any inquiries about the development or surrounding area of the project?
When you buy any property you need to consider the surrounding area of the property to ensure that it will meet your needs. Often when a developer is selling a property off the plan they are also installing amenities, parks, entertainment precinct and other structures (for example power poles, sewer mains, easements, sewer pumping stations etc).
You need to consider how these will affect your use of the property and your lifestyle in general. Even if you are buying the property for investment purposes, you need to consider these matters to ensure that your property can be rented for the best possible price.
When is the development’s completion date?
This is a question that purchasers often need to ask. It is critical that you know when the development is likely to be completed. You then need to factor in delays such as extreme weather events to ensure that you have an accurate goal of when it will settle.
Besides knowing when you are going to own the property this is also critical from a funding perspective. If you are borrowing money for the purchase then you need to ensure that you are going to be able to afford to settle when the time comes.
What is the amount of the deposit you need to provide?
Legally a seller under an off the plan property in Queensland can request a deposit equal to 20% of the purchase price. These funds can be tied up for up to 5 and a half years depending on how long the development will take and what sunset date is in the contract. It is critical that you ensure that whatever deposit you can fund that you can do without that money for a substantial period of time pending the end of the development.
What investigations of restrictions have you conducted into the build?
When you are buying a vacant block of land to then build a house on, you need to consider what you want to build on the property and whether there are any building covenants that will restrict you from achieveing your dream home.
Building restrictions, also known as Building Thresholds, encompass many different elements of construction. Garden layouts, perimeters, building height and property extras must all be considered when you are planning to go beyond just building a single story home.
The easiest way to begin investigations is consult the land owner. A construction manager who helps oversee the build will more than likely be able to give you a list of restrictions in the area. If that doesn’t work, going to your local government unit and asking them for a list of regulations will give you the answers you need.
What finance enquiries have you conducted?
Most people do not realise that finance approval usually only lasts 3 months. Most of the time an off-the-plan purchase will be longer than that period. Also most financiers will require an ‘as complete’ valuation to be conducted on the property when the construction is completed.
This means that a purchaser requiring finance to purchase a property off the plan is taking a risk that the valuation will not allow for completion of the property.
Have you researched the developer?
You should always research the developer and their history. A simple google search can attract a lot of information for you as to the developer’s reputation and may even allow you to inspect their building portfolios.
Note: Streten Masons Lawyers does not believe that internet sources are 100% reliable. There are other ways of researching your developer, such as inquiry through a trade centre or local realtor. Have you considered how long you will keep the property?
This really depends on your goals- do you want to have a long term or short term investment? Is there anyway for you to value add with the property and what is your sale exit strategy. It is always preferable to consider these matters before you buy a property to ensure that you have a method to your property purchasing strategy.
Have you considered the contract inclusions?
Do not always assume that you are getting extras included in the property. You must ensure that they are listed on your contract. Important items that often get missed are appliances such as dishwashers. It is also a good idea that you ensure the brand of the property that you are buying to make sure that you get what you pay for.
buying a property off the plan is an important process to get correct, and without proper legal advice can land you in some nasty pit-falls. You need to think about all of these matters carefully to ensure that you get what you are paying for when you purchase the property. At Streten Masons Lawyers, we believe that anyone who wants to build their own property deserves it. We act for a large number of people buying property off plans, and we’d love to help you out as well. Please contact us today on 07 3667 8966 to enquire as to how we can help you.