Real estate buyers throughout Sydney may be given the opportunity to buy “off the plan.” Buying off the plan is an industry term that typically refers to making a real estate purchase before construction is complete or even before construction has begun. Instead of going to a finished home or an apartment that has been completed, a buyer looks at a blue print and other construction plans and makes the choice to purchase.
There are some significant advantages to buying off the plan, but there are also risk factors as well. If you are considering making this kind of real estate investment, talk to Owen Hodge Lawyers first so you can get legal advice on structuring the transaction to protect your interests.
Advantages of Buying Off the Plan
- A discount off the finished price. You pay current market price when you buy off the plan, but property values usually rise each year due to inflation and a growing market. By the time the property you purchased is constructed, it often will be worth more than you paid for it.
- A small outlay of capital when the project gets started. Typically, you are required to put only 10 percent down on the property when you buy off the plan. This means you have more time to save money and secure financing as the property goes through the construction phase.
- An opportunity for customization. When you buy before the construction process has been completed, you often get the chance to provide input on the details of your new home. You can choose your own paint colors, fixtures, or finishes depending upon the agreement with the builder and vendor.
- Stamp duty discounts. Stamp duty concessions may be offered when buying off the plan, depending upon where the property is located.
- Peace of mind that comes with new construction. When a building is brand new, you should not have to worry about items breaking soon after you move in. Buildings up to three storeys high should actually be covered by a structural warranty, so you will be protected from defects.
Disadvantages of Buying off the Plan
There are some downsides to buying off the plan to consider as well. Some of the disadvantages include:
- A long wait for construction to be complete. It can take several years until you are in your new property.
- Uncertainty about the finished product. When you buy a completed property, you can walk through it and have it inspected. When you buy off the plan, you have to hope the workmanship is up to par and the quality of the property will be what you expect.
- Unexpected changes. Construction projects rarely go perfectly and you could find there are changes made during development you do not like. You should ensure there are restrictions in your contract, including limits on reductions in the size of the property by the vendor. It is common to include a clause specifying that if there are reductions or increases of more than five percent of the area in the finished construction versus on the plan, the contract can be rescinded and deposit refunded.
- Reliance on the vendor and builder. You need to make sure the builder is reliable, will correct defects, and will be able to finish the product on-time and according to plan specifications. You also need to make sure your vendor has responsibility to you in case things go wrong. The entire success of the investment is based on how well the contract is performed, which means you are making a big bet on the vendor and builder’s ability to complete the deal as promised.
These and other downsides can be mitigated with a detailed contract protecting your interests and ensuring you have legal recourse if things do not go as promised. Owen Hodge Lawyers can provide you with assistance reviewing and negotiating the terms of your contract if you want to buy a property off the plan. Call us today on 1800 770 780 or contact us via [email protected] to learn more.