An off the plan property transaction involves signing a contract with a developer to buy either vacant land, or land to be developed with a building on it, before land sub-division or titles are issued. Usually an initial deposit is paid at the time of contract signing, with the balance payable at settlement, after title has been issued.
Buying off the plan can provide the opportunity to purchase a property at today’s prices without having to pay the full amount for some time.
However there are risks associated with these types of transactions. One of these is the risk that the development may not proceed due to failure by the developer to obtain sub-division approval or construction finance. In addition most contracts have a cancellation or withdrawal clause for the developer if construction costs rise so high as to make the project unprofitable, or if a certain number of apartments are not pre-sold.
There have been some examples of projects being cancelled and scaled back despite the property being pre-sold off the plan.
Off the plan contracts need to be read very carefully. There may be clauses which allow for higher building or engineering costs to be passed on to you. Careful attention should be paid to the quality of construction documentation relating to elements such as landscaping, fixtures and fittings, car parking (spaces per unit), room dimensions and materials used. Any provision which allows the developer to unilaterally change these specifications should be carefully considered before contract signing.
Finally, many off the plan contracts promote a “rental guarantee” period during which time the investor receives a guaranteed rental income. Of course these guaranteed amounts will be factored in to the property’s price to you. Rental income returns after the guaranteed period has expired may not be as attractive in the long term depending on market conditions.
Off the plan purchases have been very popular in recent times. Rising property prices have presented buyers with an opportunity for capital gains during the construction of off the plan property investment. However this may not always be the case and further advice can be obtained from the Department of Consumer and Employment Protection on Tel: 9282 0777. The process is not without risks which need to be considered before entering into a contract agreement.