How to Minimise the Risk When Buying Off-the-Plan

By: Shannyn Brown

Buying off-the-plan can be an easy sell to first home buyers and property investors. An off-the-plan property has a lower price and stamp duty payable. And, depending on the building company, you can make interior decisions like paint and carpet colours, or get upgrades to the property’s fixtures and fittings.

However, many purchasers don’t know what an off-the-plan property is, or how to recognise one by the contract of sale. I asked Peter Mericka, a property lawyer from Lawyers Conveyancing, these questions and more about buying off-the-plan.

What is “off-the-plan”?

“An off-the-plan property is a piece of land, or unit, that hasn’t been registered on its own certificate of title,” explained Mr Mericka.

He said the contract will specifically identify the individual property for sale as well as a certificate of title for the whole subdivision, and a plan showing the land being divided into smaller lots – hence the saying “buying off-the-plan”.

And the benefits of buying off-the-plan?

“You are paying a reduced stamp duty based on the value of the land before the development is finished. For example: if you are buying an apartment that is worth $500,000 you would pay a high rate of stamp duty, compared to the value of the land on the day of sale – which might only be a fraction of that,” he said.

How about the risks?

According to Mr. Mericka the biggest pitfall is for purchasers who are borrowing. They will usually have a contract subject to approval of their home loan. Finance may be approved by that date, but it will usually take a lot longer than that for the plan of subdivision to be registered. So that months, or years, later when the plan registers and it is time to settle – their finance approval would have expired. And the purchaser will need the bank to re-approve their loan to be able to settle. And if the bank refuses to do so, the purchaser will find themselves in the impossible situation of having to pay for the property without any bank funds.

That said, having your own money to purchase a property does not always save you from headaches either. The problem for people who have the cash is that the finished property may not be what they expected. “I always say it is like commissioning a work of art,” explained Mr Mericka. “You employ someone to paint your portrait, but when you see it, it’s not really what you wanted or expected.

“Does a purchaser have any options if they are unhappy?

Generally speaking: no, said Mr. Mericka. “Off-the-plan contracts have a lot of special conditions the purpose of which is to limit the rights of the purchaser and maximise the rights of the vendor. Which includes the right to change the size of the lot, and if it is a unit, to change the configuration of the unit. It is regarded as not sufficient to end the contract if the change is less than five per cent of the size of the property.”

Protect yourself from the start with legal advice

It is always best to get a lawyer to check the contract before signing it, and make sure you understand what you are committing yourself to. “If you get advice these conditions will be pointed out to you and you can negotiate for the removal or changing of the special conditions. But in most cases, especially with large developments, there can be strong resistance from the developer, and you may be stuck with what’s on offer,” said Mr. Mericka.

And the final word on buying off-the-plan?

If there was one thing that Mr. Mericka would tell a purchaser buying off-the-plan: “Don’t do it if you are relying on bank finance for the purchase. Off-the-plan is for investors and those with the funds to buy without assistance”.

Lawyers Conveyancing offer pre-contract legal advice for off-the-plan purchases. Click here to protect yourself when buying off-the-plan in Victoria.