Thinking of Buying “Off the Plan”?
What is “Off the Plan”?
Buying Off the Plan is not like buying an existing house or unit. Like the name suggests, it involves entering into a contract with the relevant builder
or developer of a block of land, by looking at the plans. This means construction has not yet been completed and the property has not yet been registered
on its own certificate of title.
It is important for the buyer to make sure they are dealing with a reputable builder or developer, who will deliver on their promises. It is therefore
recommended that the buyer do appropriate research before entering into an Off the Plan contract with any builder or developer.
These contracts are drafted quite differently to a normal property contract. They can be very lengthy and detailed, and will include attachments such as
the plans, designs, and a schedule of the fittings and fixtures.
Checking all inclusions within the contract becomes even more important when purchasing a property that has not even been built yet. It is important that
the buyer fully understands the conditions and warranties outlined within. It is therefore a good idea to have the contract independently reviewed
by a solicitor, as these contracts can often feature terms heavily in the developer’s favour.
A deposit between 5-10% of the total purchase price is usually required when the contract is signed. However, the substantial time between signing the
contract and completion of construction can give the buyer time to save additional funds or organise their finance.
Sellers have strict obligations in relation to the disclosure of certain information. The buyer must sign the disclosure statement to acknowledge they
understand all of the information provided by the seller.
This clause provides a time limit for completion of the development, and if this does not occur, the contract is void. The buyer is refunded their deposit
and the developer is freed from their obligations. The time limit specified can vary among contracts.
What are the Risks?
- The completed dwelling may not be the same as the plans or look like what you expected.
- The buyer is not able to inspect the ‘finished product’ until the contract is unconditional and at best all they can do is require the Developer to
rectify any defects after settlement.
- There can be unexpected delays in construction meaning it is not finished in the original time frame told you (but note there may be a sunset clause).
- Falls in the market may mean by the time the property is actually completed it has less value.
- You may not be able to make the contract subject to finance meaning there is a risk you can’t complete the contract if you can’t obtain finance.
There are obvious benefits in purchasing Off the Plan, such as the value may go up before you have paid for it and having more time to secure purchase
monies. However, buyers should also be aware of the risks in purchasing Off the Plan, and should not sign any contract, without first having it looked
at by a solicitor.