Buying ‘OFF THE PLAN
As local areas continue to grow and expand, a greater number of people are deciding to purchase ‘off the plan’ property in new developments.
What is an ‘off the plan’ property?
‘Off the plan’ refers to property that is not yet separately titled and is usually part of a larger development. You are literally purchasing your land off a proposed plan, there is no title or address yet. In most cases, these properties are sold as land only, meaning that upon settlement the purchaser receives a vacant block of land and will then enter into a building contract with their builder of choice for the dwelling.
Sometimes, people may also have the opportunity to purchase dwellings ‘off the plan’. This is more common for apartment buildings and townhouses, where at the time of sale, the land is vacant and unregistered, however by settlement the land is titled and has already had a dwelling built by the vendor. This is often referred to as a turn-key purchase as there should be nothing left to do but turn the key to your new place.
What are the benefits of buying off the plan?
There are a number of benefits to buying unregistered land off the plan:
- Generally, a smaller deposit may be required, and there is more time for you to save up additional funds during the long settlement periods;
- You may be able to save on stamp duty buying a vacant block of land compared to an established home, as the dutiable value of the property may be less;
- The First Home Buyers Grant is usually available to first time purchasers interested in purchasing off the plan (speak to your broker/bank for advice);
- In the case of buying a completed dwelling off the plan, you may be eligible for the ‘off the plan’ stamp duty concession;
- If you are purchasing vacant land, you will have more input into the design of your home than if you buy an established home.
What are the risks of buying off the plan?
There are also a number of risks to consider when deciding whether an off the plan property could be right for you:
- An uncertain completion date – developers often provide an estimated settlement date at the time of signing, however off the plan contracts are usually subject to a ‘sunset clause’ (see below)
- Complex contracts that are sometimes over 300 pages long – it is important to get legal advice from an experienced property and conveyancing lawyer before signing to ensure you understand all the terms and conditions contained in the contract
- Strict timeframes – some developers impose strict time limits on when you need to have your dwelling completed after settlement. In some cases, if you are faced with delays and can’t meet the deadline, they have the option to buy back your property.
- Generally, you cannot make an off the plan contract subject to finance. This means that if your circumstances change in the time between signing and settlement, you may run into issues with your lender.
- Additional costs incurred as a result of delays – sometimes there can be significant delays in getting the property ready for settlement, meaning the prices associated with building your dream house may increase in the meantime.
What is a ‘sunset clause’?
Developers are often able to give rough estimates of when they expect land to register at the time of signing the contract. However, Off the Plan contracts generally include a ‘sunset clause’. These clauses, for example, may make the contract subject to the registration of the plan within 48 months of signing the contract. That means that even if you had been told they were expecting the land to title within 12 months, they have the whole 48 months before you are able to take any action and cannot get out of the contract under that clause any earlier. Once the sunset period has elapsed, you can validly terminate the contract. The vendor also has the ability to terminate after the sunset period, but usually need either your consent or the consent of the Supreme Court.
If you have any questions about off the plan properties, please contact our friendly team on 03 5292 1994 for advice.
