Off-the-plan purchase is becoming increasingly popular in Australia, as the property market is quite strong, people are purchasing off the plan to ensure they acquire a certain property.
Out of all the Conveyancing cycles, an off-the-plan purchase typically spans the longest timeframe. With this in mind, there is a more inherent risk and should be carefully planned. We recommend people identify a professional legal firm to guide them in this endeavour. This page is designed to educate readers if they are planning to purchase off the plan and familiarise them with the Conveyancing process.
GENERAL GUIDELINES
Advantages of off-the-plan purchases
- Choosing exactly what property you want
- Possible capital growth between the time you purchase and settlement
- Possible depreciation for taxation purposes
Disadvantages of off-the-plan purchase
- Possible capital loss between the time you purchase and settlement
- Possible oversupply
- The final construction is impossible to perfectly conceptualise (i.e. natural light or views)
- The developer can make certain changes without your consent (to negate this, the contract should be itemised and very detailed (i.e. benchtop material, fly screens type, colour schemes, fittings)
- Not knowing what body corporate fees will be long-term.
By listing more disadvantages than advantages, we are not intending to discourage people from purchasing property off the plan, but rather educate them on a safer transaction.
These inherent risks are always present when purchasing off the plan, as mentioned, partnering with a professional legal firm will be your best course of action. In addition to this, people purchasing off the plan can also perform the following to set themselves up for success
- Researching the construction company. How long have they been in business? Are they well known and have a proven record of delivering high-quality projects?
- Maintaining awareness of the Contract of Sale. Namely, the sunset clause and how this can be executed (more info in the FAQ below)
- Understanding the sale is typically unconditional. This means, the Contract of Sale is binding, and people must ensure their financial and employment circumstances can satisfy obligations in the future.
- Understanding you can negotiate on the price
OFF THE PLAN PURCHASE IN IN NSW – WHAT YOU NEED TO KNOW
To further protect vendors and buyers in this scenario, in 2015 the New South Wales Government passed an update to the Conveyancing Act, the update addressed the situation where some developers may deliberately wait for a sunset clause to be activated, and re-sell the property for a higher purchase price, thus negatively impacting the original buyer (time wasted, Conveyancing fees and potentially unable to enter the market).
People can view the Legal protections for off-the-plan property purchasers on the NSW LRS website here, the main features are:
- A vendor must provide at least 28 days’ notice before rescission under a sunset clause. Additionally, they must provide an explanation as to why this is occurring.
Should the construction not be completed by the sunset date, the buyer can withdraw from the purchase without repercussion. In the event the buyer wishes to wait for the construction to be completed, they must provide written consent to extend the settlement.
Read our article about off-the-plan purchase property for more detailed information.
FREQUENTLY ASKED QUESTIONS
In short, a sunset clause is a statement in the contract that allows the parties to the contract to rescind the contract if the construction of the property is not completed by a certain date- the sunset date.
There may be additional terms allowing the sunset date to be extended, so be sure to review the contract carefully.
This is a variable situation as it depends on what is written in the original contract.
In the contract, there are usually conditions that provide the vendor with different timeframes for extenuating circumstances. The vendor may also request the buying party to consent to the extension of the settlement.
Should the development take longer than the agreed sunset date, the purchaser can terminate the contract without repercussions.
Yes, first home buyers in NSW can receive an exemption or concession from payment of stamp duty when purchasing off the plan.
In terms of eligibility for buying off the plan, some complexities should be considered. According to the First Home Buyers Assistance Scheme, a person must satisfy the following:
“At least 1 eligible purchaser must occupy the home as their principal place of residence for a continuous period of 6 months, commencing within 12 months of completion of the agreement.”
We recommend you liaise with our Team to ensure the timing of settlement synchronises with your movements and that you can move into the property at an appropriate date.
The Contract of Sale should be explicit and state your prospective property (i.e. Apartment 32, Lot 4, 123 Smith St, NSW) and not simply the construction of the entire building.
HOW WE CAN HELP
- Preliminary advice and planning
- Reviewing the Contract of Sale in detail
- Helping you understand your rights in regards to sunset clauses, defects, building size, inclusions, and quality assurance
- Helping you understand potential changes to property management, ongoing fees, and insurance
- Resolving disputes with the developer
- Confirming that the finalised plan is consistent with the property you agreed to purchase
- Attending to settlement
HELPFUL LINKS
Off the plan purchase – Fair Trading NSW
https://www.fairtrading.nsw.gov.au/housing-and-property/buying-and-selling-property/buying-a-property/buying-off-the-plan
Legal protections for off the plan property purchasers – NSW LRS
https://www.nswlrs.com.au/__data/assets/pdf_file/0004/206842/2015_10_Legal_protections_for_off_the_plan_property_purchasers.pdf