Top tips for purchasing off-the-plan in the ACT
14 Feb 2018
2017 was the first year where sales of units surpassed the sales of houses in the ACT*. With the rise in apartment sales, many buyers are faced with the option of buying off-the-plan. Snedden Hall & Gallop Lawyers explain some things you should know when looking to buy off-the-plan.
What is purchasing “off-the-plan”?
Purchasing off-the-plan means entering into a contract for an apartment or house that hasn’t been built yet.
The timeframe between entering into the contract (or exchanging) and settlement may be a couple of years, depending on the stage of construction at the time of exchange.
Once construction is complete and settlement occurs, buyers are handed the keys to a brand new property.
Benefits of purchasing off-the-plan
The obvious benefit of purchasing off-the-plan is that you get a brand new property, along with a 90-day defect liability period. However, there are a number of other benefits which make purchasing off-the-plan an attractive prospect, specifically for first home buyers and investors.
For a first home buyer in the ACT, purchasing a new property means you are eligible for Stamp Duty concession – or zero duty, depending on the price of the property – as well as the First Home Owners Grant (currently $7,000**) which “tops up” your loan amount. As an investor, there are a number of tax benefits to buying a new property.
Since the property hasn’t yet been built, there can be an opportunity to personalise the property a little with some developers open to minor variations such as inclusions, finishes and even power point locations.
Most off-the-plan contracts allow for a 5% deposit on exchange – or even $1,000 on exchange, with the balance of the 5% deposit a month later – instead of the standard 10%. This, along with the time between exchange and settlement allows buyers to comfortably build up their equity and therefore contribute more to the purchase come settlement time. This will not only reduce the loan amount, but also potentially mean that the buyer is not required to pay lender’s mortgage insurance.
As property prices often rise, by the time you complete the settlement of your property, it is likely your property will be worth more than the price you purchased it for.
Risks of purchasing off-the-plan
When purchasing off-the-plan, there is a degree of risk involved.
A buyer is entering into a binding contract for a property that does not yet exist and therefore there is nothing for them to inspect.
Off-the-plan contracts generally allow the developer to make certain variations from the plans buyers are initially shown, such as size reduction (up to 5%) and layout changes if required to get plans approved.
There is also a risk that the developer may need to delay settlement due to slow pre-sales, the approval process or finance issues. In these cases, if the building is not built by the ‘Sunset Date’ then contracts can be rescinded by either party.
It is worth considering that the property market may fall and this may have an effect on your properties value.
Tips for purchasing off-the-plan
There are a number of things buyers can do to reduce the risks of purchasing off-the-plan and make the concept more desirable.
Researching the developer and/or builder is important. Look for developers that have significant experience and have delivered a number of projects to the market (specifically for large multi-storey projects). Look at their previous projects as an indication of the type of product they deliver and organise a time to inspect one (or more) of their properties if there is an opportunity to do so.
Exchanging early in the development offers buyers a number of incentives including their pick of the best units. The units with the best views or north facing balconies often get snapped up quickly, so getting in early ensures the buyer won’t miss out on the unit they want. Some developers will run ‘pre-release’ or VIP offers at the beginning of the development, which tend to see units sold at a lower price point or with an extended deposit due date. This can often be the best time to get into the development and exchange contracts.
Buyers should engage a solicitor or conveyancer with experience in off-the-plan purchases to ensure that they understand their obligations, risks and opportunities. The off-the-plan contracts can often be big, dense and intimidating so engaging a solicitor or conveyancer who is familiar with this type of contract means the buyers can feel confident that nothing is missed and the process is seamless and stress-free.
How can Snedden Hall & Gallop assist?
The conveyancing team at Snedden Hall & Gallop have a great deal of experience in off-the-plan properties. For more information on purchasing a property off-the-plan, contact the Conveyancing team. Please call us today for effective and responsive conveyancing services in the ACT by email or phone on (02) 6285 8000.
* ACT Real Estate Market Trends Report
**All figures and details are accurate at publication date of 14 February 2018.