Don’t get caught out when buying off the plan

Do your homework and get specialist advice before you sign.

Beware when buying off the plan

Buying off the plan can seem very appealing, but is it?

You are buying a new property and can tailor the interior decoration to your taste. You usually pay a 10 per cent deposit and the final payment is not due until the property is completed, giving you plenty of time to organise your finances, which may include selling an existing property.  Also, in Victoria and South Australia there are stamp duty savings which can add up to tens of thousands of dollars.

But beware.

Smoke and mirrors

The display suite may not be a true representation of what you are getting in terms of quality of fixtures and fittings.  There is no way to tell from a display suite how thick the walls will be, what the soundproofing will be like, the quality of the windows and so on.  You may find that the high-end appliances in the display suite are not included in the basic contract without paying for an upgrade.

It can also be very difficult when looking at a display suite or plan drawing to get a true sense of the dimensions of each room.  Make sure you get a scale drawing of the design and step out the dimensions at home – just how much smaller is the lounge room, will your furniture fit? 

Howdy neighbour

Buying off the plan means you may have no idea who your neighbours will be. There have been many reports of downsizing couples buying an apartment only to discover, when they move in, that the other apartments are investor-owned holiday rentals.

How long is a piece of string?

Make sure the contract states that you will be compensated financially if the work is not completed on time. Otherwise, you could find yourself in a costly short-term rental and your furniture in storage. 

‘Sunset’ clauses in many contracts mean that if the delivery date is more than a year after the original completion date, the contract can be rescinded.  But where does that leave you? In the time you have been waiting, property prices will most likely have increased, so you will have to buy into a more expensive market.  This ‘sunset’ clause cuts both ways – the developer can also rescind the contract. 

There have been reports of developers deliberately delaying completion in order to give the original deposit back and put the completed apartment on the market at a much higher price.

Variable valuations

If the property market declines during the construction period, you may find it difficult to finance your purchase.  The bank will approve a mortgage based on the current market value at the time of completion.  You are locked in to paying the developer the full purchase price, but if the market has declined the bank valuation may be lower than this figure and you will have to fund the difference. 

The resale value of apartments bought off the plan is much lower than that of conventional dwellings.  A recent report in the Australian Financial Review stated that some apartments, sold in the first 18 months after completion, resulted in losses of up 30 per cent on the investment. 

Still considering taking the plunge?

Get the details of other developments constructed by the same company and check them out.  If you’re lucky there will be one for sale and you can get a good look inside. Even checking out the exterior of the building and lobby areas will give you an idea of whether your developer is likely to deliver on his promise.

Make sure you invest your money wisely in the interim and be aware that you may need to have a temporary accommodation solution as a back-up if the development is delayed or, worse, never be completed.

Research all the parties involved in the development: the developer, the builder and the selling agent.  If you decide to go ahead, ensure the contract is checked by a specialist property lawyer.

Have you bought off the plan? Was it a good or bad experience?



    To make a comment, please register or login
    3rd Jan 2018
    Agree with all of the above. Well written.
    Personally I think people who listen to government propaganda will find themselves having a degraded lifestyle and trapped. Don't do it. Most certainly not because the current government is telling you so as this lot have no soul other than ingratiating the well off. You are their fodder!
    3rd Jan 2018
    I am so so pleased o see my hero MICK posting on here again, I was really worried about you MICK.
    I am so used to your pearls of wisdom on all sorts of subjects on here that I just would not know what to do if you are not around.
    Welcome back after a few days absence and I wish you a very very happy healthy and prosperous New Year.
    PS. when are you going to be our PM or at least Treasurer?
    Did you send a Christmas card to Malcolm Turnbull, you couldn't resist having a pop at the current gov't could you, old habits die hard?
    3rd Jan 2018
    Well, Mick is right - the only game left in town is property, and one of the major pushes of this 'government' is to both compel retirees to downsize to 'open up the market', and to ultimately compel them to sell down all their assets before receiving a pension, as you will hear Old Geezer (Ebergeezer Scrooge) going on about in another minute.

    Never lose sight of that reality here - governments respective have royally stuffed it as regards taxation, cash flow for the necessities and bills coming due, and especially the retirement bill coming due, and their only answer is to rob the retirees and the unemployed while praying for a little trickle-down rain.
    3rd Jan 2018
    Basically we need, as a nation, to totally abandon the 'global market' which does not work for us in any way.... and we should shake off the shackles of international corporations playing at paper tigers and standing over nations with threats of withdrawing their 'investment' that equally does nothing for nations.

    I've said many times that if some lard-assed corporation doesn't want to play here by OUR rules - their opposition will gleefully snap up their 'market share' and will play by whatever rules we set.

    Time for the corporate tail to stop wagging the dog. Stand up, Australia - where are your Gallipoli balls?
    3rd Jan 2018
    They're bouncing, Trebor. Front page in the Courier Mail states that seniors across the nation will join forces and campaign to end discrmination. They will rise up to end ageism.
    3rd Jan 2018
    'bout time, too.........
    3rd Jan 2018
    I have heard some terrible scenarios with off the plan contracts and unscrupulous developers.
    I had a friend lose everything in the transition between her home and the place she planned to move in. Somehow (during a significant housing market boom) the endless delays in construction and the faux bankruptcy of the developer meant they had her deposit money to construct roads etc. They returned her money after about 2 years but houses had doubled and she was left with virtually nothing to buy another home.
    It seems like a good idea but there seems to be too many untrustworthy people out there.
    3rd Jan 2018
    Very well said Mick and i mean every word you stated we have confirmed by our experience that it is the worst decision we have made in 56 years of marriage. We bought off the plan and were denied ANY access to the building until the day after we paid in full and when we walked in my wife gasped "its too small i can't believe it". It took us 3 years to sell it for a loss of $70k and we are now living in a regional area as a consequence (probably the best decision we have made). If you can't afford a penthouse don't do it !!!

    3rd Jan 2018
    Slim Mehajer and The Incredible Shrinking Floor Plan... brought to you by NowDefunct Councils Inc ..... showing in a a building near YOU!!.
    billy boy
    3rd Jan 2018
    true, buyer beware, and exhaust all avenues of inquiry, before purchase, if you still have a bad gut feeling, walk away ;)
    3rd Jan 2018
    The "good" news is that I hope, a lot of Chinese are being ripped off by their brethren because they buy off plan from Beijing or wherever.
    The Chinese are also responsible for a lot of the property price rises, when are we going to stop the selling off of Australia to the Chinese?
    I am not being a racist just a realist.

    3rd Jan 2018
    Oh - and the tradies in family will tell you stories of their being ripped off by these 'developers' who borrow massively for a 'project', skim the cream like Slim did to the tune of millions before ever turning a sod, and then go 'belly-up' when the bills fall due, leaving countless working tradies seriously out of pocket for materials and labour. They then recoup more millions by - guess what - using another 'company', 'owned' by their sister or similar, to sell off the project.

    There's your big time smoke and mirrors - the lack of control and regulation over company structures, and the lack of genuine sanctions against wrong-doers.

    We (the ex and I) have between us two building tradies and two electricians - each has stories to tell of some of these high flyers.

    If it smells like a rat, feels like a rat, runs like a rat - it's sure to be a rat...
    3rd Jan 2018
    The towers at Redfern/Waterloo - was it The Beehive?
    4th Jan 2018
    I thought that was the New Zealand Parliament.... in Wullington... it was a good name for those Ministries of Truth buildings (read 1984 by Orwell)....
    3rd Jan 2018
    Are these the slums of the future d'ya think?

    The workmanship seems tissue thin and on the shoddy side--- full of cheap trendy feature all designed to impress the aesthetically gullible, but which will date faster than last year's hemlines. Eventually, they will look as silly as all that fake Mexican that was around a few decades ago. Only my guess is that it will date even faster as tastes are changing more rapidly than they ever used to.

    And as if that wasn't enough of a disincentive, my cousin vacated one of these dog-boxes because he was surrounded by neighbors' round the clock heavy metal. Despite protests to management, police, and said neighbours, nothing changed. He sold at a 40K loss.
    3rd Jan 2018
    I reckon most of them are the slums of today, Sybilla, never mind the future.
    3rd Jan 2018
    Yes - remember those Eastern European/Mediterranean blocks that collapse mightily with earthquakes and kill hundreds? Then we have the spectre of the vertical slums with their endemic crime, gang turfs, and locked and barred doors and windows for all decent citizens.

    What did they call those towers in Waterloo again - I forget... filled with 'housos' of various kinds - I once was seeing a lady who lived in one, and she was wary of the nut cases, druggos, low-lives, etc. I showed up with my car and she told me to make sure I parked it under the lights....

    Vertical Brixton, innit?
    3rd Jan 2018
    You may know who the developer and builder are, but will they use the same sub-contractors when they build the next lot?? Quality of work definitely varies with the sub-contractors .
    3rd Jan 2018
    Yes, it does, Blossom, and when the sniff of money is around it's everything thrown up as fast as possible cutting as many corners as possible.

    3rd Jan 2018
    The information about the "Sunset" clause is incorrect. Legislation was passed in NSW to vary the clause making it much more difficult for the vendor to exercise it. If an intended purchaser doesn't agree with having the contract rescinded, the vendor needs to go to the Supreme Court to get a ruling and prove that the delay was completely outside their control.

    The details can be read here:
    3rd Jan 2018
    Most importantly check out what the body corporate fees are. They are often thousands per quarter due to lifts, pools etc
    3rd Jan 2018
    .... and read the fine print for 'necessary levies' - my kid's mother used to live in Blues Point Tower - after she left the new body (or was it management?) corp decided they needed to levy thousands to repair 'concrete cancer'.....

    Do you REALLY trust the managing body?

    Go live in the country - clean air and clean living and mostly decent people of the old school.

    Got a nice house up here on the Mid North Coast coming up for sale in three months or so, renovated three bedrooms, sun room/office, two bathrooms, three toilets (one in back yard) and garage and two car ports, established gardens including fruit and veg. Good honest town with the police station and ambulance just around the corner, walk to shops and pub, clubs two minutes away with golf course over top of the hill, deep water river leading into Great Lakes around the corner with boat ramp, twenty five minutes from beaches, and nearly two hours and a half to Sydney (about 2h 25 min), major cities under one hour and new highway to north and south at the doorstep (almost).

    $400k and it's yours....
    5th Jan 2018
    The final paragraph is the key. Do your research, seek any advice ncessary and if you decide to procede have secure arrangements signed and sealed.

    The disadvantages outlined have impacted many but there can be advantages in buying off the plan too.

    Several potential advantages are fairly obvious. You may have an opportunity to secure a location which may be more eagerly sought at a later date. The developer eager, to secure sufficient certainty to satisfy their bank, will often offer reduced price or more inclusions.

    Very attractive properties have often returned early adopters windfall profits when they go to sell. Part of the game can include recognising the likelihood of advantage when the developer is weakest and using that moment to extract the greatest certainty.

    Developers with any wits, largely, make extremely easy dollars but they have to develop to make those and despite some history to the contrary, banks are often not very generous.

    Tags: money, plan, property,

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