Problems with property development have been a hot topic the last six months, and an issue we do not expect will go away anytime soon. Unfortunately, often enough we are asked to assist clients who have purchased off the plan or who represent body corporates in dealing with defects.
Here are some practical tips for buying off the plan:
- Do not rush into purchasing off the plan. In our experience most developers have projects on the market for sometime with units available for many months. Use this time to scope out the project, the surrounding developments and to conduct your due diligence. Request the draft Contract before you make an offer, and give yourself and your lawyer plenty of time to read and consider all the possibilities.
- Undertake research on the developer. Ask us and do some searching of news articles. Find out who the directors of the developer are, and conduct searches on them as well. There is a lot of information out there on failed developments, defects and complaints. This information can help guide you on who you are prepared to purchase from.
- Understand your obligations with regard to paying the deposit. Often, although developers will allow you to pay $1,000 on the day you sign the Contract, by signing the Contract you are at risk of the developer being able to recover more than 10% of the purchase price from you. You might be putting more than the $1,000 you have paid at risk.
- Speak to your bank or broker early on. Some developers offer incentives, such as cash back or other financial incentives. The bank does not take into consideration those incentives when valuing the price of the property and how much they will lend you. It is important that the purchase price you are agreeing to pay reflects a fair value for the property, despite the incentives.
- Understand the type of variations that are allowed under the Contract and whether you are prepared to accept the discretion in favour of developer to make “minor” changes. Most off the plan contracts allow for variations in configurations or size, and while there are limitations on this it is often an area for disputes.
- Understand the conditions under which the developer may terminate the Contract – which is most commonly if sales do not reach a certain level. Ask the questions, find out how many they have sold when you start considering buying.
- Remember, developers need sales in what is a very competitive market. Use this to your advantage and ask for variations and amendments to the Contract to satisfy your concerns.
- Include a sunset clause so that you can terminate the Contract if the developer does not complete the project on time. This will help give you more certainty and a way out if you need to look for other options.
If you would like to know more please contact our team here.