Buying off-the-plan? What you need to know

29 October 2019

Buying off-the-plan? What you need to know

For homebuyers struggling to get their foot into the market, buying off-the-plan can be an inviting option.

From flexibility on the term in which they need to arrange their finances, to the possibility of owning a modern apartment otherwise out of their reach – for some, it can be a deal too good to turn down.

For others, buying off-the-plan is seen as an investment fraught with risk.

Changes to off-the-plan contract laws because of the Conveyancing Legislation (Amendment) Act 2018 (NSW) and Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW) come in the hope to alleviate some of the current risks associated with buying off-the-plan – and better protect potential purchasers.

Originally tipped to commence in September, the New South Wales government is now expecting to bring in the changes as of the 1st of December.

What’s changing?

Disclosure statements

Once the changes come into effect vendors will have to attach a disclosure statement to the contract. This must contain a draft plan from the surveyor, the proposed lot number, a proposed schedule of finishes, draft by-laws and more.

If the disclosure statement, draft plan or other prescribed documents aren’t attached to your contract before it’s signed, you’re able to back-out of the deal within 14 days of exchange.

Material particulars

One of the risks associated with buying off-the-plan is that plans can change. During development modifications can be made to your property – and you can be left with something different to what you imagined. New laws require vendors to notify buyers of any changes to ‘material particulars’, which can adversely affect the use of the lot. These include changes to the draft plan, by-laws and the schedule of finishes.

Under the new legislation purchasers will, in some cases, be able to rescind their contract or claim compensation for certain changes to a material particular. This will only be available to buyers who can show they wouldn’t have entered into the contract, had they been aware of the change. If this is a road you want to take, you will have to act within 14 days of being notified of the change.

Deposit to be held in a Trust

One of the biggest fears when buying off-the-plan, is the developer goes bust during the building process and the buyer’s deposit is lost. Under the changes any money paid by a purchaser under the contract must be held in a trust or controlled account until settlement, preventing this from occurring.

Stronger sunset clauses

Under the changes, stories about developers cancelling sales contracts to take advantage of higher market prices will no longer exist. Tightening of sunset clauses means if a developer does run over schedule, they are only allowed to cancel a contract if either the buyer agrees, or it is approved by the Supreme Court.

The buyer can also be awarded damages by the Court, if the vendor is permitted to pull out of the contract under a sunset clause.

Cooling-off period

The cooling-off period for off-the plan contracts has been extended from 5 business days to 10 business days.

Registered plans

Developers will need to provide a full copy of the registered plan and any associated documents to the purchaser at least 21 days before settlement.

Buying off-the-plan: The Pros

Cheaper price point

To invite early sales, developers tend to offer the first lot of properties at a cheaper price.

Lock in a price

You’re able to lock in a price in today’s market for a property to be built in the future. If property prices do go up, you have the potential to make quick profit.

Finance freedom

To secure an off-the-plan property, you usually only need a deposit of 10%. The long settlement then gives you some breathing room to come up with the rest of your finances. In NSW stamp duty on an off-the plan purchase agreement can be delayed for 12 months after the date of the agreement.

New build

New regulations mean off-the-plan properties must be fitted with energy efficient appliances. A new construction could also mean savings on repairs and maintenance, that may be needed if you bought an older home. It also gives you the opportunity to customise your finishes and fittings.

Stamp duty savings

Stamp duty is paid on the value of the land and building at the date of the contract of sale. If construction is yet to commence, the value would be less than if it was a fully finished building.

Buying off-the-plan: The Cons

Locking in a price

If prices fall while the property is being built, you may find yourself paying more for a home than its worth. This can also impact your ability to secure a loan.

Finished product

Building plans can change and so can the dimensions of your property, the quality and finishes may not be what you expected, and you may get a final product very different to what you envisioned.

Building delays

Often with major developments, building times can blow out and you may find yourself unable to move in as early as you originally thought.

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