Buying off the plan – questions to ask yourself
Buying off-the-plan is a popular way to purchase property. Yet unlike traditional property purchases, when agreeing to buy off-the-plan, you are agreeing to pay for something which has yet to be built or is under construction.
But there are several things potential buyers can do to ensure they aren’t purchasing a dud.
The first is to know your rights. While these will vary between states, Fair Trading NSW (FTNSW) says that under state law there are a number of prohibited marketing tactics developer sales team are not allowed to use when offloading their properties.
These include advertising a property for a lesser price than other similar properties, if the advertised property is no longer available.
Likewise, the law dictates that agents must not indicate a price range for a property, where the lower end of the range is less than the agent’s estimated selling price for the property. They are also prohibited from holding on to your expression of interest payment or using high pressure tactics to get you to buy another property at a higher price if the property you made a payment for ends up being sold to someone else.
It’s important to remember that when it comes to purchase price, what you commit to when buying off the plan is what you’ll pay, even though the property may not be ready for quite some time.
Your lender won’t be able to value the property until it’s completed, so you won’t get the peace of mind of a bank valuation when you initially agree to purchase off the plan.
In the worst case scenario, if the bank’s valuation at the time of completion is less than the agreed purchase price, you may not be able to borrow enough to complete the sale. Therefore it’s wise to put ‘subject to finance’ in your off-the-plan contract (even if you have pre-approval).
FTNSW cautions that when you buy off-the-plan, you are paying for a property where the end product may not only differ from your expectations, but may be worth less than you have paid by the time it is finished.
“If you are thinking of entering into a contract to buy premises not yet built, exercise caution and obtain appropriate legal and other advice before signing any documents or paying any money,” it says.
Before you agree to purchase a property off-the-plan in any State or Territory, consider the following:
- Are you paying too much – Market prices can fluctuate and growth rates can vary. It’s important to prepare yourself for the fact that the resale value of your property once it’s complete may be less than you may think.
- How are you going to fund the purchase – If paying the balance on settlement relies on another sale, you’ll need to ensure you are ready.
- What are your options for interim accommodation – Have a plan B as construction delays could mean you may find yourself homeless once your current tenancy runs out or the sale of your existing property goes through.
- What changes to plans could there be? Changes to the building plans often occur during the construction phase. The finished apartment or town house may not be same as in the original plan so it’s important to consider any terms in the contract that may allow these changes.
- What will the quality of the finish be? When signing the contract, you may not know exactly how your property will look when construction is finished. Sometimes, the fixtures and fittings are different from what was featured in the demonstration display.
- What management contracts are in place – In a strata scheme, the developer may have signed binding management contracts between the owner’s corporation and caretakers or building managers. Ensure your lawyer or licenced conveyancer arranges to see a copy on your behalf.
- What are the entitlements – Voting rights and strata levies have ongoing impacts on owners, so it pays to determine what voting power you have and to confirm how much you can expect to pay in levy contributions.
- Deposit payments – When you pay a deposit, take note of where it is paid into. It can be held in a trust account or paid directly to the developer. Be aware however that your money could be at risk if the developer goes bankrupt.