Don't underestimate the risks in off-the-plan buying
One of the biggest risks is that a developer or builder will go under before completion or that a project will fail to get off the ground, but this should result in no financial loss for the buyer.
When you pay your 10% deposit to secure your property it is held in trust either by the selling agent or vendor’s solicitor.
If the developer is unable to go ahead for whatever reason buyers will get their money back.
Another big issue is often the final product. Carolyn Chudleigh, a partner at law firm Holding Redlich, says the best way to protect yourself from a nasty shock is to check every detail on the sale contract, particularly regarding the finishes.
“Most disputes arise from a buyer not being happy with the end product. The best way to avoid this is to be aware of exactly what all of the finishes should be,” she says.
“You should look at the schedule of finishes for all parts of the property, including floor coverings, colour schemes and kitchen appliances. Know everything about the interior, down to how many power points there will be in every room. All of this can be negotiated before exchange of contracts and should be included specifically in the contract if you want to be able to enforce performance against the vendor. If a contract is skinny on detail, there may be little room for complaints at the end of the day,”she says.
Timing of delivery can also be an issue for people buying property off-the-plan.
“Developers do need flexibility in the sale contract so they can ensure successful delivery of the apartments, and there are many situations that may cause the delivery date to be extended, such as wet weather.
“Become familiar with what is on the contract that will allow the ‘sunset’ completion date to be moved. Leave no room for surprises. If you do not understand the contract, take it to a conveyancer and have them read it and explain it to you. Do not cut costs, because with buying off the plan you cannot see exactly what you are signing up for,” Chudleigh says.
Purchasers have successfully been awarded large sums of money through the courts where their views have been built out contrary to assurances from marketing agents, so there is recourse.
In Victoria, a new consumer law aimed at improving transparency and disclosure for off-the-plan property came into force early 2012.
The front page of all sales contracts must state three things: that the amount of a deposit is negotiable but cannot exceed10% of the purchase price; a “substantial period of time” may pass between signing the contract of sale and when the buyer becomes the registered owner of the property; and the value of the property may change between the time the contract is signed and when the buyer takes ownership.
These detailed and clear warnings on the contract highlight the risks that are taken when buying off-the-plan.
When it comes to signing the contract you should be completely satisfied with all terms. If you are not satisfied by certain clauses, you should ask to have them amended, though the developer may refuse.
The bottom line is that if you are not happy with the contract, you should seek legal advice. If the developer adopts a “take it or leave it” approach, your best bet may be to leave it.
For great tips on buying off the plan, download Property Observer’s free ebook – 14 tips for buying off the plan: The 2013 guide for investors and owner-occupiers.
