KLH Conveyancing

Get in touch with us

phone iconCall us

Suite 24, 15 Terminus Street, Castle Hill

Buying off the plan – is it right for you?

Buying off the plan isn’t quite the same as buying an existing property, and it isn’t for everyone.

There are some potential advantages:

  • Developers may offer incentives or low prices, since buying off the plan is one way they fund their building costs
  • You may get input into finishing touches of the home and be able to make it your own
  • Your new home should be defect free and have lower maintenance and repair costs
  • You get time to save while your home is being built

Those positives come with risk as well. Let’s explore issues you should consider before buying off the plan.

Understand what ‘buying off the plan’ really means

When you buy off the plan, nothing physically exists.

Nothing legally exists either.

Even if there is a building, if it hasn’t been registered with NSW Land Registry Services, it doesn’t legally exist and you can’t occupy the property.

Different ways of buying off the plan

There are a few ways that buying off the plan can work in practice.

  • Where the developer and the builder are the same business, it’s what we call a turnkey solution. This is the most common model. Everything is in one contract. The usual process is to create plans including the subdivisions, sign contracts for sale, then build. Registration doesn’t happen until after the building is complete. Settlement is dependent on that registration and follows soon after.
  • There are also cases – most recently at Box Hill, where developers simply sell you the block of land and you find the house and builder you want to go with. In this case, they register the vacant land before settlement. You then enter into a separate contract with your builder to build your home.
  • Similar to this is the ‘house and land package’. The process is the same – you enter a contract, the developer registers the vacant land, you settle, you contract with a builder. The difference is that the developer and the builder are working together. So you deal with both at the same time and they promote one overall price.

The impact of two separate contracts

A ‘house and land package’ still involves two separate contracts. This can affect your eligibility for concessions and grants.

For example, right now in September 2021 (OR: up till 1 August 2021), there are stamp duty concessions for first home buyers paying between $800,000 and $1,000000 for a new home.

  • If you buy a new home from for $830,000 under one contract, you’re eligible.
  • If you buy the same home under two contracts – land for $600,000 and a build contract for $230,000 – you’re not eligible.

Note that this is only an issue for houses and townhouses. Units are always a turnkey solution so the question of two contracts doesn’t arise.

Considerations when buying off the plan

As conveyancers, our clients expect us to look at the contract, but the important issues are not just about the contract. They’re about your level of comfort with risk. Some risk cannot be mitigated by a contract.

Changes from the original plan

When you sign the contract, the building doesn’t exist yet. The contract has clauses enabling the developer to change things as required to get approval. That could be the address, unit number or lot number, or something more significant like lot size or dimensions. The developer doesn’t need your consent, they just have to give you notice of changes affecting your lot.

The contracts are quite specific that you can't rescind unless the changes detrimentally affect the property or reduce its size by more than five percent.

It’s vital to read the contract carefully as detrimental change may be very closely defined.

Most developers keep changes to a minimum so they don’t damage their good name. But there is still some risk, so it’s worth checking the reputation of your developer before signing anything.

Defects in the finished building

Significant changes from plan are rare, but recently there have been several high profile cases of defects in finished buildings. In the worst cases, this included structural defects which made the buildings unsafe, so residents had to evacuate, or occupation certificates were not issued so they couldn’t move in at all.

Defects of any significant scale make it almost impossible to onsell a property.

While the contract allows you to rescind at this point, the developer doesn’t want to lose all the buyers, so they will resist any attempt to do so. There’s a high chance of heading into litigation.

In the meantime, no bank is going to take the property as security – it’s too high risk. So clients have no way to finance an alternative property.

Every letter of advice we prepare for an off the plan purchase raises this risk. With an existing property, you can get pest and building reports. When buying off the plan, all you can do is check the builder’s record for the last ten years. It’s not for everyone.

What about delays in construction?

Off the plan contracts usually have a ‘sunset date’. That’s the date by which the developer must have registered the property. Otherwise, an option is triggered for you to rescind the contract.

Having a date by which an occupation certificate must be issued is less common. It’s something we always push to include.

Paperwork always takes a little longer than the build itself. The general trend is that the build completes, an occupation certificate is issued and then registration occurs. But it’s not always the case, and we warn clients about this. We try to set a time frame, so that the occupation certificate has to be provided within a certain time after the registration. It means clients aren’t waiting indefinitely.

Contracts also leave developers the option to extend the sunset date for matters outside their control. There are certainly reasons for them to have that flexibility. Severe climate events like flooding, or even the recent two week construction lockdown are clearly beyond the control of anyone.

Whether you accept an extension or not, you still have to deal with it.

Sunset dates can be as far off as seven years. While you’re waiting, you can’t build equity in your property. And if you rescind, you get your original deposit back, but it may not be enough to enter into another contract now.

Customising your home finishes

On the positive side, buying off the plan allows you to specify the finishes you want. Some examples we’ve dealt with include:

  • Specifying the marble top should be black
  • Changing carpeted rooms to floorboards because the client is hyperallergic.
  • Adding an additional basin to a master vanity unit

We’ll work with you to make sure every detail goes into the contract. If it’s something you want and your developer has agreed, it has to be in the legal document, so we make sure it is.

Remember the contract is everything

Even in a standard off the plan contract, we’ll send back a full review. 10 or more pages covering the key conditions. So often the client response is ‘That’s not what they told me’. But most contracts specifically say that you have not relied upon anything provided to you by the marketing or the vendor before entering into this contract.

A recent buyer had asked about council rates. The property was two to three years from completion, it wasn’t registered – there was no way to answer with confidence. But the real estate sales person quoted a figure, which wasn’t the same as the adjustment figure in the contract.

Far more significant is when a client has been told that the property will be completed by a certain date, but it isn’t. Once the contract is signed, there’s nothing we can do about that. We have to wait for the sunset date before we can act – and that might be another two years. It doesn’t happen often, but it’s a bitter pill for clients to swallow.

We can request changes to the contract. They may or may not be accepted. And once the contract is signed, it’s final.

Selling and buying off the plan is common. It can be a great way to get the home or investment property you want. But it has risks and it’s not for everyone. Hopefully this helps you decide whether it’s for you.