Buying Off the Plan Contracts

Buying Off the Plan Contracts

Buying “off-the-plan” generally involves signing a contract with a developer before the developer has obtained final approval to subdivide land that is being purchased or, in the case of a building, before building has commenced or been completed.

Off-the-plan sales include the sale of vacant land, house and land packages and strata properties (such as units, townhouses or high rise apartments) that are yet to be built or are under construction. Completion of a development can take a long time. A one to two year time frame would not be unusual for an off-the-plan development.

Perhaps the main attraction of buying off-the-plan is it provides purchasers with an opportunity to obtain property at the current market price on payment of a deposit (generally no more than 10%), with the majority of the purchase price being payable at settlement at some future time.

This provides purchasers with time to organise their finances and, if required, sell their existing home, without the need for bridging finance. Developers may also sell some of the land or proposed building at a discount price if they need to meet sales targets or to get construction underway. If the real estate market is experiencing growth then the land or buildings purchased off-the-plan may also rise in value by the time the property is ready to settle.

Perhaps the biggest disadvantage of buying off-the-plan is a developer may be unable to proceed with the project within the time specified in the contract or at all. This may occur because the developer is unable to obtain final subdivision approval or is unable to secure sufficient investment funding to finance the project. If this happens the developer may choose to cancel the contract (should the contract provide for this).

Be aware of speculative developments where a developer seeks to use deposit monies to fund the development of the land or, in extreme instances, to fund the land purchase itself. In these cases the required deposit could be significantly higher than normal and could be lost altogether if the purchaser signs away their legal rights to it, lured by a purchase price that is considerably under current market value.

Although a contract would normally provide for the return of a buyer’s deposit money in the event of a development not proceeding, a contract would not usually provide for payment of any other compensation. Importantly, even though a deposit may be refunded, the buyer will have lost the opportunity to purchase elsewhere in what may have been a rising real estate market.

Contact us at LJ Hooker Settlements, we understand these sorts of transactions well and we can guide you through the process.

Janet Hryb, Managing Director 94266088

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