What to consider when buying off the plan
Published in the Newcastle Herald 27 March 2018
Given the number of tower cranes in the city skyline at present and low interest rates, more people than ever before are considering buying property ‘off the plan’. So, what should you know before buying off the plan? Here are some tips and traps:
KNOW WHAT YOU ARE BUYING: One of the biggest risks buying off the plan is not receiving the benefit of seeing what you are buying before signing the contract. Most contracts include clauses that allow for variations that do not have a ‘detrimental effect’ on the property, which can include changes to the size, shape and configuration of the property and variations in the fixtures and finishes.
SUNSET CLAUSES: A sunset date sets a time limit for the completion of the build and registration of the plan. The sunset dates can be years after the date you exchange contracts and, in most contracts, these dates can be extended. Therefore, your deposit could be tied up for a long time. Further, if you are wanting to move into the property, long and extended sunset dates can cause uncertainty and stress.
CHANGE IN CIRCUMSTANCES: Although you may be able to obtain pre-approval for finance, formal finance approval may not be given until the property is close to completion. If your financial circumstances change between the date of pre-approval and formal finance approval you may not have the funds available to complete the purchase. Further, interest rates and lending policies can change and this may also affect your lending capacity.
REDUCTION IN VALUE: The price that you are willing to pay for a property today may not be the same as the price that you are willing to pay in two years.
DEFECTS: If the contract provides for a defect period, the vendor may be obliged to repair certain defects but only for a certain period and based on limited allowed requests, sometimes as little as one, from the purchaser. These clauses are generally onerous and can give rise to a dispute. Disputes of this nature will not usually allow completion to be held up pending resolution of the dispute. It is important to understand your rights and obligations before exchange.
KNOW THE BUILDER/DEVELOPER: Before committing to an off the plan contract ensure that you know the builder and the developer responsible for construction of the property.
AND FINALLY: Get good legal advice.
Marissa Dimarco is Solicitor Director, Property and Commercial at Osborn Law