There are various ways in which property can be purchased in New South Wales. One such option is purchasing a property that is ‘off the plan’. We’ve outlined what it means to purchase an off the plan property and to learn more you can always contact one of our property specialists.
What is an ‘off the plan’ property purchase?
An “off the plan” property contract refers to a contract for the sale of a property that has not yet been subdivided, and/or is still under construction. This type of contract is common in the sale of apartments, townhouses, and other residential developments.
How do off the plan property purchases work?
Off the plan contracts are a way to get buyers to commit to buying property before subdivision or construction is completed. Sometimes properties are sold before development consent is received from the council and well before any work has been done on the site, and sometimes properties are sold when construction is nearly complete. The contract will contain information as to what stage the project is up to, and what the developer is obliged to do before settlement.
Why do property developers sell property off the plan?
There are various commercial reasons why a developer may want to sell properties off the plan. Construction finance can be expensive and often developers will want to ensure that they can complete the sale of the new properties the moment that they are completed to minimise unnecessary finance costs. Sometimes developers will want to assess the market demand for their proposed project before they start construction, or they may be required by their lenders to have a certain number of property pre-sales before they will obtain development funding.
What does an off the plan contract contain?
Some key features of off the plan contracts include:
Description of the Property: Generally speaking, the contract should include detailed plans and specifications of the property showing the proposed final product. This may include floor plans, the proposed plans for the entire development and a schedule of materials and finishes to be installed in the property.
Deposit: Buyers will pay a deposit when they sign the contract. The amount of the deposit can vary but is often 10% of the purchase price. The balance of the price will be payable once the property has been completed and a settlement date has been set. This information is included in the contract.
Sunset Clause: This sets a deadline by which a developer must complete construction and subdivision of the property. If the property is not completed by this date, a buyer may have the right to get out of the contract and receive a refund of their deposit.
Variations: The contract may allow for the developer to make changes in the design or materials used in the construction of the property, or allow for certain variations to the size of the lot. Some changes may be agreed in the contract to be considered ‘not material’ and may allow a developer to make changes without a purchaser’s consent.
Completion and Settlement: Once the property has been built, the developer will notify the purchaser and a final inspection will be arranged to ensure the property is built as per the terms of the contract. Settlement typically occurs shortly after this, at which point the balance of the purchase price is paid, and the buyer takes ownership of the property.
Is it worth buying off the plan?
Buying a property off the plan can be a worthwhile investment, but it comes with both potential benefits and risks.
Benefits of buying off the plan
Potential for Capital Growth: Where people buy off the plan in a rising market, there is the potential for capital growth if the property market rises between the time you sign the contract and the completion of the property.
Stamp Duty Savings: In some cases, buying off the plan can result in stamp duty savings or deferrals, depending on the current schemes being offered by Revenue NSW.
Modern Amenities: As Off the plan properties are newly built properties, you may have the benefit of modern designs, new appliances, and contemporary finishes. For investors, this may allow tax deductions for depreciation.
Customisation: Buyers may have the opportunity to customise certain aspects of the property, such as finishes and fittings that will be included in the property. This can be preferable to buying an established property which may require significant costs, as well as strata or council approval to make changes.
Risks of buying off the plan
Market Fluctuations: If the property market declines between the time you sign the contract and the completion of the property, this may leave you with a property worth less than what you agreed to pay at the time you signed the contract.
Delays in Construction: Delays in construction can often occur, which may affect your plans and finances. The property developer often has rights to extend the time they have to complete the project if delays are outside of the developers control (such as labour strikes and pandemics).
Quality of Finishes and Developers rights to vary plans: As you are purchasing a property without seeing the finished product, it is possible that the finished property may not meet your expectations or the specifications outlined in the contract. Developers are often allowed to make certain minor variations without needing a buyers input if they are deemed not material.
Developer Insolvency: If the developer goes bankrupt, you may face significant delays or be caught up in legal proceedings.
Sunset Clauses: These clauses can allow developers to get out of the contract if the project is not completed by a certain date, potentially leaving you without a property and having to start your search again.
When will you need to pay stamp duty for an off the plan purchase?
In New South Wales, stamp duty (also known as transfer duty) for an off the plan property purchase is generally due within three months of the date of the contract.
If you are buying off the plan and can meet certain eligibility requirements, such as if you are intending to live in the property after it completes, a stamp duty deferral may be available which might instead allow you to pay stamp duty on the earlier of:
If you are eligible for the First Home Buyers Assistance scheme or other concessions, different rules may apply. It is important to check the specific conditions and deadlines that apply to your situation.
Conclusion
When considering buying an off the plan property, it is important for buyers to conduct thorough due diligence and seek legal advice before entering into an off the plan contract. The contracts can be highly technical, and if not properly reviewed, can lead to many issues, as you are buying something that has not yet been built.
Whether buying property off the plan is a good idea or not depends on your individual needs, your risk appetite, and the specific details of the development. It is crucial to conduct thorough due diligence, including:
Reviewing the developer’s track record of completing similar projects.
Understanding the terms of the contract, especially any clauses related to variations and sunset dates.
Consulting with a specialist property lawyer to ensure you are fully aware of your rights and obligations under the contract and at law.
Thornton + King have many decades of experience in dealing with conveyancing for off the plan property transactions in NSW. Our property law specialists can assist in guiding you through the process, and help you to avoid any pitfalls that come with buying an off the plan property.
If you’d like to work with us, submit an enquiry now.
