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Your guide to buying off the plan

By ,| 6 min read

There are so many options available and decisions to make when it comes to buying a home. Choosing to purchase a property off the plan can be appealing, especially to first home buyers as it offers a more affordable option for buying a newly built home.

In this guide, we’ll cover what it means to buy off the plan, how it works, what your protections are as a home buyer and other frequently asked questions.

What does it mean to buy a property off the plan?

When you buy off the plan, it means you enter into a contract to buy real estate that has not yet been built or is still in the process of being built. This means you base your purchase around floor plans, designs and renders, rather than a finished product.

How does buying off the plan work?

Here’s what the process will typically look like when you buy a property off the plan, from signing the contract to post-settlement.

1. Purchase

After you’ve had a chance to review the floor plans, designs and any existing renders of the property and you’re happy to go ahead with your purchase, you’ll receive a contract.

The contract should include information on the property, your obligations, an outline of your deposit and payment, as well as the developer’s obligations to you. It may be a good idea to ask your conveyancer or solicitor to review the contract front to back to ensure everything is in order.

After you’ve signed the contract, you will need to pay your deposit to secure your property, which will typically be around 5-10% of the total purchase price.

The remainder of your deposit won’t be due until settlement, giving you more time to save.

Your deposit will usually be stored in a trust account where it’s held until development is complete.

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2. Development

The construction time for your property can vary, depending on how long it takes the developer to obtain building approvals, hire contractors and so on.

You should receive updates from your sales agent when construction begins and as different milestones are met. You might also receive photos with each of these progress updates.

Towards the end of construction, your sales agent should also give you an estimated settlement date.

It may be a good idea to make sure your financial situation is in order and you’re prepared for when settlement day comes.

3. Settlement

When construction is finished, you’ll be able to do a pre-settlement inspection of the property and ask any questions. Make sure you bring up any issues you notice, such as damaged or missing features so these can be fixed before settlement.

After your inspection, the property will be registered for inspection by a third party to ensure it complies with building regulations and safety standards. This process can take anywhere between a few days or weeks.

Settlement typically takes place around 2 weeks after it’s been registered for inspection by the third party.

At this stage, you'll need to have unconditional home loan approval from your lender for the purchase price and start making home loan repayments.

It’s also during this period that you will need to pay the remaining balance of your deposit.

After the money has been transferred and the contract of sale has settled, the property is yours.

4. Post-settlement

You’ll typically have a grace period after settlement to report any damages, defects or issues you come across in your property.

The builder should be able to fix these for you free of charge as part of the builders warranty.

Protections when buying off the plan

Protections were introduced in 2019 to further protect buyers of off the plan properties.

Sunset clauses

A sunset clause allows the buyer or seller to walk away from a contract if certain requirements are not met by a specified date (the ‘sunset date’).

Developers are legally required to obtain the buyer’s consent before they end a contract using a sunset clause.

Disclosure

Before committing to purchasing an off the plan property, the developer will need to provide the buyer with a disclosure statement attached to the contract. This disclosure statement should contain key information like:

Sunset dates and other conditional events Draft documents including the floor plan, proposed schedule of finishes and draft by-laws A development contract and management statement, as well as the schedule of finishes.

Notification of changes

For contracts entered into from December 1st, 2019, buyers must be notified of any changes that happen during development in a ‘material particular’. This includes any change that affects the use or enjoyment of the property.

For example, if you’ve purchased an apartment off the plan, changes to building plans could happen during construction, causing the shape, size and layout of your apartment to be slightly altered.

The finished property may not necessarily match what was laid out in the original plan. In this case, a notice of changes must be served at least 21 days before completion.

In some instances, a buyer may be able to pull out of the purchase and receive their full deposit back or even claim compensation for damages.

Should this happen, it may be a good idea to seek legal advice from your solicitor or conveyancer to understand your rights.

Cooling off period

Buyers of off the plan properties have a cooling off period of 10 business days. This is twice the length of when you buy an existing or established property.

During this time, they can choose to pull out of the contract but will be required to forfeit 0.25% of the purchase price for doing so.

Deposits

Any funds contributed to the purchase of an off the plan property, such as the deposit, will need to be held in a trust or controlled money account during the contract period.

This money is not accessible by the vendor until settlement, so this protects the buyer in the case the developer is not able to complete construction.

What are the differences between buying a house and an apartment off the plan?

The process of buying a house and apartment off the plan is similar, but there are a few distinct differences between the two.

When you buy an apartment off the plan, you’ll be required to pay strata fees which your developer should provide in a schedule.

This might also include the sinking fund fee, which was designed to help homeowners in a strata scheme pay off major capital works or emergencies should they arise. By requiring smaller regular payments, they can avoid having to pay large one-off fees.

Another important thing to consider is that apartments typically have longer construction times. They can take around 2-5 years to complete, whereas houses usually take about 6-18 months.

Are you eligible for the First Home Owners Grant (FHOG) if you buy off the plan?

Yes, given you fulfil the criteria set out by your state and territory for the FHOG, you will be eligible for this grant if your home is purchased off the plan.

When will you need to pay stamp duty?

When you’ll need to pay stamp duty will vary depending on where your property is located. Stamp duty is generally payable in the same time period for off the plan properties as it is for established homes.

However, this differs in NSW. If you buy a residential property off the plan, you can defer paying it for up to 12 months after you sign the agreement or until the property is completed or handed over (whichever comes first).

You can read more information about when stamp duty is payable in each state/territory in our stamp duty guide.

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Important things to consider when you’re buying off the plan

If you’re planning to buy off the plan, here are a few important things to consider before you take the plunge:

  • It’s useful to research the developer and builder before you commit to buying a property off the plan. If they have a bad track record, it might be a good idea to steer clear
  • Ensure you know what the process is to fix any defects or damages you find after construction is complete
  • Find out how to get builders warranty in the case the developer goes bankrupt or can’t complete construction so you’re protected
  • Make sure you read the terms and conditions of a contract and ask any questions before signing. It’s a good idea to ask a conveyancer or solicitor to review the contract for you
  • Understand the potential risks involved with purchasing an off the plan property.

Buying a property off the plan is a huge commitment. It’s important to know the ins and outs of the process and understand the risk involved. Speak to a Home Loan Specialist to find out more.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: off the plan, building new home or structure, new purchase, investment property, investment, stamp duty, first home owners grant

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