OFF THE PLAN – WATCH LIST

What to watch out for when buying an off-the-plan property!

Purchasing off-the-plan properties can be quite appealing. You get the chance to customise certain features, enjoy the fact that the property is brand new, and be enticed by the sleek, modern designs showcased in the glossy promotional brochures. However, it’s important to be aware of the potential pitfalls:

Market Fluctuations: Price Changes: The market value of the property might decrease between the time you sign the contract and when the property is completed, potentially leaving you with a property worth less than what you agreed to pay. Economic Conditions: Changes in the economy, such as interest rate rises or economic downturns, can impact your financial situation and the property market.

Developer Risks: Delays: Construction delays are common and can push the completion date well beyond the original estimate. Quality Issues: There can be discrepancies between what was promised in the marketing materials and the actual quality or specifications of the finished property. Developer Insolvency: If the developer goes bankrupt, you could lose your deposit or face significant delays.

Legal and Contractual Complications: Contract Clauses: Off-the-plan contracts are often complex and tend to include clauses that favour the developer, such as the ability to make changes to the design or specifications without your consent (the ‘sunset’ clause). Incomplete Developments: Some developments might not be fully completed as initially planned, impacting the amenities or overall value of the property.

Financing Issues: Valuation: Lenders may value the completed property lower than the purchase price, affecting your loan-to-value ratio and potentially requiring you to provide a larger deposit. Interest Rates: Interest rates could rise between the time you sign the contract and when you settle, increasing your mortgage repayments.

Limited Scope for Inspections: No Physical Inspection: You are buying based on plans and pictures, which means you cannot inspect the actual property until it is completed.

Market Supply and Demand: Oversupply: There could be an oversupply of similar off-the-plan properties in the area, which can negatively affect rental yields and resale value.

Strata and Ongoing Costs: Strata Fees: Newly developed buildings may have high strata fees to cover maintenance and other costs, which can increase over time. Defects and Maintenance: Most new buildings have defects that require significant maintenance, impacting your ongoing costs.

Contractual Obligations: Stamp Duty: Although some states offer concessions for off-the-plan purchases, you may still be liable for stamp duty, which can be substantial and can sometimes be due before you settle. Completion Risk: If the project is not completed on time, you might face additional costs or need to make alternative living arrangements.

Thorough due diligence, including understanding the developer's track record, carefully reviewing the contract, and seeking professional legal and financial advice, is essential when considering purchasing an off-the-plan property.

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