The pros and cons of buying off-the-plan.
Australians have a rollercoaster relationship with off-the-plan property purchases.
With a bit of diligence and support from an experienced property lawyer, you can purchase your property, pop champagne at handover and avoid the sour taste of a purchase that falls short of expectations.
If you are considering buying off-the-plan, keep reading to find out how to avoid the pitfalls and property perils that lead to messy off-the-plan litigation.
The benefits and risks of buying off-the-plan
Buying off-the-plan means purchasing a property before it has been built, usually in a subdivided lot, new estate, or apartment building.
Like every property investment strategy, the off-the-plan approach has pros and cons.
The benefits of buying off the plan
- More time to save
Buyers often pay a deposit when signing the contract. The balance is then due when the property is completed and handed over. This gives you more time to save for furniture, move-in costs and lump sum mortgage repayments.
- Potential value increase
With the current volatility in the property market, there is every chance that buying off-the-plan means your property is worth more by the time it's finished. For investors especially, this gamble can pay significant dividends.
- b>Benefits and grants
In some states and territories, buying off-the-plan comes with perks like the First Home Owner's Grant or tax benefits for property investors. Check with your bank, broker, or accountant to find out if you are eligible for concessions or tax benefits when buying off-the-plan.
- Land Transfer (Stamp) duty savings
Like tax benefits, off-the-plan property can sometimes come with a stamp duty waiver. Ask your Melbourne property conveyancer for the latest advice, as stamp duty concessions can save you thousands of dollars.
The potential risks
- The property falls short of expectations
One of the most significant risks of buying off-the-plan is that the finished property fails to live up to your expectations. Perhaps the builder cut corners or the glossy brochure oversold the lifestyle benefits. Without being able to walk through the property before it is finished, there is no way to 'get a feel' for the finished home. You can mitigate this risk by checking the quality of the builders and/or developers other projects they have built.
- Construction delays
If your builder encounters delays or financial trouble, it may extend the waiting period for your new home. At best, this is frustrating. At worst, you could experience financial hardship from prolonged rental obligations or loan repayments.
- Decrease in value
If recent history teaches us anything, it's that the Australian property market is unpredictable. Values can fall just as quickly as they rise - although this is true for any property purchase.
- Your situation might change
Construction can take months or years. In that time, your financial situation can change significantly, meaning the deal you agreed to no longer suits your lifestyle or investment goals.
What you should consider when buying off-the-plan
When buying off-the-plan goes wrong, you might end up asking yourself how you can get out of an off-the-plan contract?
To avoid frustration and find a solution to your property perils, it is worth engaging an experienced property solicitor like PCL Lawyers to advise you. They will check the contract and look for ways to end the off-the-plan contract. There are many different options that we can help advise you on if you can no longer complete the purchase.
In particular, purchasers considering buying off-the-plan should be aware of Section 9AC of the Sale of Land Act 1962 (Vic), which outlines the seller's responsibility if the agreement materially changes.
Section 9AC sets out purchasers rights when the developer changes the apartment.
In Section 9AC it says that developers must inform buyers if the subdivision plans materially change between entering into a contract and the developer registering subdivision plans.
Developers must notify buyers of material changes within 14 days. These include changes to the property such as:
- Lot size changes
- Variations in lot liability or common property entitlement
- Removal of a storage cage
- Changes to common property
Buyers have a short time to respond to the notification if they have an issue. If the change is unsatisfactory the buyer may be able end the contract - that is, walk away and get your deposit back.
How a Melbourne property lawyer can help navigate Section 9AC and avoid off-the-plan risks
Section 9AC prevents nasty off-the-plan disputes and litigation down the track. It does not prevent developers from trying to amend properties it just gives you rights if they do. It is important if you are buying off the plan to get advice if there is a change to the plan at all.
Not all changes are material, so you can ask an experienced off-the-plan property lawyer for help understanding your rights and the vendor's obligations.
It may give you opportunity to get out of your off-the-plan contract, which may suit some buyers if their circumstances change.
The experienced property and litigation lawyers at PCL Lawyers have seen the benefits and pitfalls of buying off-the-plan many times over.
Our experience is your advantage.
If you are considering an off-the-plan purchase, to find out how we can help you smooth the road from signing your contract to settlement day.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.