When it comes to buying off-plan, many buyers are not aware of just how different the sale and purchase rules are. Clauses in pre-sales contracts for new apartments or subdivisions actually provide developers with the option to make changes to the contract, which could impact on the price you pay. To help you understand the different set of sale and purchase rules that apply when buying off-plan, read on.
Variances in price
Price variances are not uncommon when buying off-plan. That’s because there’s a good chance that the cost of materials and labour will rise in the time between you signing the contract and the construction work actually starting, which could end up being a year or two later. If the developer does vary the price, buyers will be given the option of either paying more or getting their deposit refunded.
A sunset clause is often included in contracts where the property is still under construction. It puts an expiry date on an offer if certain terms within a contract are not met, providing the buyer with a safety net to fall back on, whilst the seller is pressured into completing the necessary work on time.
Unfortunately, some developers will use the sunset clause to get out of a contract when they realise they can sell a property at a much higher price. It’s vital that buyers are aware of this potential loophole, as it could mean they lose out if the contract is cancelled under the sunset clause; in our hot property market, continually rising property prices could mean being locked out of the property market when trying to enter six months down the line.
With so many new apartments and townhouses springing up around the country, and plenty more in the development stage, developers are under pressure to secure a certain number of pre-sales before banks will let the development go ahead and approve mortgage lending.
Off-plan contracts are not unconditional, and are always contingent on the developer getting pre-sales, finance, and consents. Under a vendor condition clause, the developer is required to obtain a sufficient number of pre-sales and all consents before securing finance. If this doesn’t happen, the buyer may be asked to either cancel their contract or pay more.
Pros and cons
Whilst there are a number of pros to buying off-plan, it’s essential you’re aware of the cons too.
Advantages to buying off-plan:
- As the property market continues to boom during construction of your property, you could potentially make a profit on your development between paying your deposit and the final instalment without actually doing anything to the property you’re buying.
- Buying early on in the development stage means you get to choose the best apartment or townhouse in the complex – be that the property with the best views or the ideal location – and most often you get a say on the decor and the finishing touches to your property.
- As prices tend to increase as construction nears completion, getting in early means you could grab a bargain.
- And finally, when your home is complete, you get to live in a brand new home with all the mod-cons.
What to watch out for:
- Buying off-plan means you don’t get to see a physical property before you buy so you’ll need to have a bit of vision to visualise the finished product.
- Buying-off plan has an element of risk as there are a number of unknowns. Be sure to check out the sale and purchase agreement and seek legal advice before committing to anything.
- Assess the developer’s track record and credentials or you could end up feeling dissatisfied with the finished product or even end up out of pocket.
Let’s talk finance
Buying off-plan can provide first-home buyers with an excellent opportunity to get a foot onto the property ladder, as new builds are exempt from the revised LVR restrictions which apply to both investors and owner-occupiers buying existing property. If you’d like advice on securing finance to buy off-plan, get in touch with one of our mortgage advisers.