Ralan collapse shows off the plan buyers need genuine independent legal and financial advice
It is easy to get caught up in the excitement of purchasing a new apartment, particularly when you are presented with beautiful, stylish, modern designs.
It's the same whether you are a first time buyer right through to the downsizer.
But you cannot let your excitement get in the way of doing proper due diligence, or it can really cost you, Parramatta Stacks solicitor, Zohra Ali warned this week.
Ali suggests that off the plan (OTP) buyers can never be too careful.
The risks involved in off the plan purchasing emerged recently after the collapse of the Sydney-based Ralan Group, the longtime apartment developer.
It has left hundreds of apartment buyers at risk of losing their deposits for their intended Arncliffe acquisitions.
Like other off the plan purchasers they put forward a deposit - generally being 10 percent - before their property has been built. But these Arncliffe buyers went further and released their deposit for the developer who'd promised a high rate of return during the intervening period.
The apartment buyers who have released their deposits will be considered as unsecured creditors, ranking behind secured lenders the ATO, Westpac, NAB, St George, Wingate Group and Balmain NB Commercial Mortgages.
Not all off the plan contracts present the same level of risk, and as with all investments, there are important things to research.
Ali says off the plan buyers should seek independent legal advice as well as financial advice prior to signing off.
"Ultimately an off the plan buyer is purchasing something that does not exist yet," Ali noted.
She points out there are many players involved from the time of signing the contract to having it ready for settlement, including the developer, council, valuers, builders and certifiers.
"With so many players involved, it only follows that the risk of something going wrong increases exponentially to when purchasing an already built home."
An already built home is a fairly simple process – but does often involve the cautionary pest and building inspection reports during the cooling off period.
Your lawyer can help you assess the risk level of entering into an off the plan transaction by undertaking some due diligence on the proposed developer and also the builder whose bankrupcy could see construction halted indefinitely.
Ali says she wouldn't ever contenance a client releasing the deposit in an OTP situation.
"There is no reason for why a deposit should be released to a developer, and if anything, the request should serve as a red flag as to the developer’s financial situation.
"What happened to Ralan is a perfect example of what can happen if your deposit is not sitting safely in a trust account."
She describes the situation that the Ralan buyers have found themselves in was "a terrible situation."
"It will definitely take a large, financial toll on the affected families.
"To face losing your deposit this way, and at a time where the market is at a downturn and is otherwise the perfect time for a first home buyer to purchase, would be absolutely devastating."
Ali adds even if you do all the due diligence, and ensure that you go with a reputable developer, somethings can still go wrong.
After all developers cannot predict what state the property market and lending standards are going to be in in the future.
This article was first published in the Daily Telegraph.
