Extra risks involved when purchasing off the plan
With off the plan purchases becoming more and more popular it is important as a buyer to understand the extra risks involved when purchasing a property off the plan.
Here are a few things to consider:
All off the plan purchase contracts have a sunset date, that is, the date the draft deposited or strata plan must be registered by. It is important to consider this date prior to entering into a contract. The sunset date allows for an extended settlement and can often be several years after exchange of contracts.
When buying off the plan you are unable to view the finished product. You should not rely solely on the marketing brochures. The final product may in fact be different to your expectations. You should read the schedule of finishes that are attached to the contract carefully, to make sure you are fully aware of what inclusions are included in the purchase price. The quality of inclusions is also an important factor, and you should ensure that you are comfortable with the brand of appliances that is included in your price.
Most off the plan contracts allow for the amendment of the deposited or strata plans and layouts. It is important to ensure that a draft plan and layout is attached to the contract. You should be comfortable with the size and layout of the land, unit or house you are buying. Your Lawyer or Conveyancer should ensure there is an option for you to pull out of the contract if any changes to the plan substantially and detrimentally affect your use of the property.
Research the Developer
It is a good idea to carry out some research on the developer. You should ensure that they are a trusted developer, with a proven track record in large scale developments. Don’t be afraid to ask them questions about prior developments and ask them to inspect another property that they have built to ensure that you are happy with the quality of their work. Whilst the reputation of the developer is not a guarantee, it will give you an indication of the quality of work to expect.
As market prices fluctuate, you must be comfortable with the purchase price of the property you are buying. There may be a demand for land or housing when you enter into the contract, but that may change. As there is often a long settlement period, sometimes several years after entering into the contract, the resale or market value of the property could be different at exchange of contracts compared to at completion. It is difficult to determine if the market value at exchange will reflect the market value at completion.
Financing the Purchase
Whilst most of us do not know what the future holds, it is important to consider how you will finance the purchase. Your financial circumstances could change between exchange of contracts and the completion date. If you already have a loan approval for the purchase, this is usually only a pre-approval, as most financial institutions will require a valuation of the property once it has been registered or construction has been completed. If your financial circumstances have changed, or if the property comes under valuation, this may affect your loan approval. If you do not have sufficient funds to complete the purchase, you will be in breach of contract.
In NSW, stamp duty for purchasing a home off the plan when you are intending to use it as your principal residence may be deferred by up to 12 months from the contract date. To be eligible for the deferment you must live in the property for a continuous period of 6 months within the first year of ownership. If the purchase is for vacant land, or for investment purposes, stamp duty will be payable within 3 months from the contract date.
For further information please contact Kristie Krainz, Principal Lawyer.
Email: firstname.lastname@example.org or T: 02 49209255