So you are thinking of buying a property and it just so happens to be off the plan! (Meaning it is not yet built). So what does this mean to you? No doubt you have heard good and bad stories, so we thought we would explain what it really means and perhaps even dispel a few myths!
What is buying off the plan?
Buying off the plan involves securing a property using a contract of sale on an unconditional basis before the building has been constructed or completed. Mostly likely you would have been supplied with various plans and images that provides a representation of what the finished product will look like. Although it may feel different buying a property without ‘walking through it’, almost all new apartment buildings are sold in this manner, so it is a very common way of buying property.
Expression of Interest and Holding Deposit
Once you have made the decision on which apartment within the project you would like to purchase, you will be asked to sign a document called an Expression of Interest. This document outlines all the basic information for you to secure your new apartment and is used by solicitors to prepare the contract of sale. The Expression of Interest document is generally always supported by an initial deposit that is payable to ‘secure’ your apartment. This effectively shows your commitment as a purchaser to the apartment, it is then the developers responsibility to prepare the contract of sale and send to your solicitor for review. This also gives you time to work through all the detailed plans and schedules of finishes for your selected apartment to ensure it is precisely what you are wanting or make changes. These changes are called variations, and can be included in the Contract of Sale.
The contracts that are used in the off the plan sales are much more detailed then the traditional REIQ form of contract that agents use in the everyday sale of established real estate. These contracts are always prepared by the developers solicitor and provided to your solicitor for review before signing. In most cases solicitors who have a thorough understanding of off the plan contracts will review a contact on your behalf in a matter of days and then provide their recommendations.
The Unconditional Contract
The developer will be seeking ‘unconditional’ contracts during their pre-construction sales campaign. This is a requirement of the lender, because they collectively form part of the necessary guarantees that the bank requires before it can fund the construction of the project.
Paying the Deposit
All off the plan contracts will require the purchaser to pay a 10% deposit of the purchase price.
As a purchaser you generally have two ways to pay the deposit:
It is standard practice that all off the plan contracts include a sunset clause of 3.5 years. This clause is inserted for the benefit of the buyer so that it requires the seller to complete the project within 3.5 years of the buyer signing the contract. This condition is also a requirement of the bank who maybe funding the project. Should the project not be completed within 3.5 years, then the buyer has the right to either terminate the contract or sign an extension with the developer.
With the exact settlement date unknown for off the plan purchasers most contract provide a special condition where the developer will give you the buyer 14 days notice once the building is complete and titles are issued from the local government authority. It is also common practice for the developer to provide regular construction updates throughout the build phase so all purchasers will be well kept well up to date with the proposed settlement time frames.
Some Common Questions
Can I sell before completion?
Yes you can. We all know that situations can change. The best way to do this is to contact your agent/developer directly and together you can work out how to do this.
How do I get a finance approval for an off the plan contract?
We recommend you consult with a Mortgage Broker who can assess your position with the view to achieving a finance approval. Lenders generally only provide a finance approval for up to 90 days. This works well in the everyday purchase of existing property, however off the plan properties generally take a lot longer, considering the construction timeline. Therefore we suggest getting some good advice from a Mortgage Broker. The reality is that once you understand your financial position; you also need to be confident that your financial position will not change between the time you sign the contract and settlement of your property, as this can possibly affect your ability to raise finance.
What if the project doesn’t happen?
If the project is not completed prior to the end of your sunset clause, then you have the right to terminate the contract with your full deposit refunded to you without deduction
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