Purchasing property Off-The-Plan (OTP) can be both exciting and daunting; whether you're a first-time home buyer or a seasoned investor, buying off-the-plan often means taking on more risk and considering other factors such as construction and delays that can impact the final transaction and dwelling.
While it presents a unique opportunity to secure real estate before it's registered and built, the process is not without its challenges.
What Is An 'Off-The-Plan' Property?
An off-the-plan property refers to a property that is purchased before its construction or development is completed (where relevant), and its title has not registered with Titles Queensland.
Off-the-plan buyers typically purchase a property based on architectural plans, artist impressions, and a build contract, with some larger developments offering sample homes for prospective buyers to walk through.
This type of purchase can be appealing because it allows buyers to secure a property at today’s market prices, even while the value of the property may increase by the time construction finishes. They are generally cheaper than existing homes or units, and usually require a lower deposit amount. Some developers and the Queensland Revenue Office's now closed 'HomeBuilder' Grant offer further incentives to encourage off-the-plan purchases. For these reasons, they are generally seen as a viable way for younger and lower-income households to enter the property market.
Off-the-plan properties are common in housing developments and large residential building projects, offering design and finish customisations in line with a general aesthetic of the building/development.
Before diving into the off-the-plan property market, it's important to consider the advantages and risks of purchasing this type of property.
Benefits Of Buying Off-The-Plan
There can be a range of appealing benefits to purchasing off-the-plan. Not all of these may be appropriate of beneficial for your unique circumstances or development, but may include:
The purchase price is generally less when compared to an established house or unit
Generally, you’ll only need to pay an initial deposit to the seller when the contract is signed, and the remaining balance at settlement. This allows you to get into the property ladder with less capital up-front at the start of the journey
Buying off-the-plan allows you to secure a property at today’s market prices whilst enjoying more time to save for your new home, which is typically 1-5 years until construction is finalised
Developers may offer incentives or add-ons to secure buyers
If eligible, you may also qualify for the Queensland Revenue Office's First Home Owner Grant. Click here to learn more
Your property may increase in value as it’s being built, providing you with positive capital growth
If involved at the development/planning initial stages, you will have greater customisation as to external features, floor plans, and internal furnishings (where available)
Thing To Consider Before Buying Off-The-Plan
Whilst the benefits noted above may be appealing, its important to both recognise and consider the large risks involved in purchasing off-the-plan properties. Some important considerations include:
Registration and/or construction can be delayed, which will often tie up your finances and may require alternative housing solutions. It's important to consider the 'sunset clause' and other clauses that may entitle the seller to terminate the contract due to any unforeseen delays
Although lenders may offer conditional pre-approval for off-the-plan purchases before construction commences, they will not loan any money until after the property is registered. Once built, some will re-evaluate the property and your financial situation, which may impact your borrowing power
Your capacity to service the loan can be impacted by a change in your financial position, market changes or interest rate rises between the time you sign the contract and when settlement takes place
Consider the developer’s industry reputation, and speak with other buyers in the same development. The construction industry has seen a large wave of bankruptcies and lawsuits since the pandemic, and you should always remember that you are committing to a multi-year project, not a 30-day settlement like many existing houses. Developers often face delays, so ask about their history of completing projects on time, and their approach to follow-up work if issues arise post-settlement
For owner-occupiers, understand what control you have over internal and external finishes and appliances. This will be your home, and you should feel comfortable where you live. If you need a dishwasher, clothesline, garage or storage space, ensure contracts and house plans include any necessary items
For investors, property developers have been known to offer rental guarantees. Whilst this may be appealing to secure your purchase, these guarantees are generally offered for a limited time only. Consider the wider market and similar properties in the area to get a clearer picture of what you can realistically expect in the long term
Other residential, commercial or infrastructure projects may be taking place in the same area. Consider future changes to the area to ensure they do not impact your purchase and goals
In some instances (whether by bankruptcy, council/government rejection or planning delays, a development may not go ahead. You will generally get your deposit back, but by tying up your finances you may have missed out on financial gains through other investments
Purchasing an established house or unit provides certainty of moving in immediately and seeing exactly what you’re buying. Off-the-plan properties do not offer this degree to certainty, and plans or furnishing may change for a number of reasons (e.g. supply or cost)
What Is A 'Sunset Clause'?
An important clause usually included in off-the-plan contracts is a 'sunset clause'. The objective of a sunset clause is to protect both parties from extended delays, and provides specific rights and obligations.
For example, if a seller (usually the developer) encounters delays in construction, the sunset clause will generally define a reasonable timeframe for completion. Should the development and settlement extend beyond this date, the buyer may have additional rights to terminate the contract.
New reforms were introduced by the Queensland Government on 22 November 2023, and strengthen a buyer's rights under the Land Sales Act 1984. These reforms now limit when sunset clauses can be used to terminate off-the-plan contracts for the sale of land (not including community titles schemes such as apartments).
Sellers, who are often the property developer themselves, may only use sunset clauses to terminate off-the-plan contracts for the sale of land in the following situations:
with the written consent of the buyer of the land
under an order of the Supreme Court, or
in another situation prescribed by regulation.
These new laws apply to:
existing off-the-plan contracts for the sale of land that were signed but not settled by 22 November 2023
new off-the-plan contracts for the sale of land signed on or after 22 November 2023
Note that each sunset clause will be worded differently, and the rights of the buyer may vary from those described above.
It's important to remember that off-the-plan contracts often differ from standard REIQ or ADL agreements since the property in question is yet to be registered or constructed, and will include lengthy and complex annexures which specifically detail and buyer's and seller's rights and obligations.
This is why you should always seek legal advice before signing any document to ensure you understand exactly what you are entering into.
Do You Need Finance Pre-Approval To Buy Off-The-Plan?
Obtaining pre-approval for your off-the-plan property purchase can help streamline the process at the start of the contract, but it’s essential to understand your lender's requirements long-terms to ensure your financial approval is being kept up-to-date to avoid unnecessary delays or stress down the track.
Some lenders may not lend before construction has been completed, and may require a final valuation before finalising their loan.
For this reason, it is important to consider your 1-5 year financial plan and position, as your needs and lender requirements may change in that time. Keep in mind that a lender may make the loan conditional upon a valuation post-construction, so be sure you’re satisfied with this potential uncertainty before moving forward.
It is not unheard of for financial situations to change in the time between contract signing and settlement, and you may find yourself unable to purchase the property when settlement ultimately falls due. Whilst disheartening, also consider the legal ramifications and penalties that you may encounter, which will depend on the specific contract you have signed.
Key Off-Plan Purchasing Milestones
Congratulations! Once you’ve found your property, it’s important to understand the process of buying off-the-plan. Here’s a simple breakdown of the key steps:
Contract Review & Signing
We always recommend you get legal advice before signing the contract due to sheer length and complexity of these documents. Review the development plans thoroughly to ensure they align with what has been promised. Verify settlement timelines and construction phases as well. Once happy, you can sign the contract
Deposit Amount
Generally, there will be an initial deposit payable on or shortly after the contract has been signed. Ensure this payment has been made
Cooling-Off Period
Most off-the-plan contracts offer a five day cooling-off period where you can terminate the contract with minimal penalties
Finance Approval
Ensure you have taken sufficient steps with a lender to obtain finance approval by the due date. It's important to discuss with them particular requirements, as it may be some time before you need the funds available (see above)
Build Contract
Many off-the-plan contracts will include further clauses related to securing a builder and entering into a build contract. Not all property contracts will include this, but you must meet your obligations to ensure both the property and building construction proceed in a timely manner
Government Registration
For many buyers, this period will simply involve waiting for the seller to fulfil their obligation of lodging property registration documents with Titles Queensland and other approvals. Government will then review and assess applications, and either grant or reject such proposals. In most instances, once the land has registered, the seller will call for settlement, the location and time of which will be stated in the contract
Settlement
Your solicitor will ensure you have sufficient funds available (by liaising with your lender), prepare a PEXA workspace or paper lodgement documents, and attend settlement on your behalf. Once settlement has taken place, you are now the legal owner of the property
What's Next?
Depending on where building construction is up to, you may or may not be able to move into the property. Usually, developers will try to arrange for settlement and building construction to be finalised around the same time, but this is not always possible for a range of reasons
From a legal perspective, this is generally where our role as your conveyancer ends (as you are now the legal owner of the property) and you will then liaise with the builder or developer directly to ensure that the building has been finished to a standard as agreed in the property and or build contract.
Of course, if you encounter difficulties with your builder, or there are significant delays, we can assist further in disputes and litigation if required.
Each of the milestones above plays a vital role in ensuring a smooth transaction, and it is important you consider your personal circumstances, needs and the specific development before moving forward.
Always Get Legal Advice
Due to the complexity of these types of property contracts, you should always engage a reputable solicitor to guide you through this process.
Consider getting a contract review prior to signing to ensure there are no hidden or unexpected clauses that may not be in your best interest. It's easier (and generally cheaper) to negotiate terms before signing than after.
At RHC Solicitors, we offer guidance to ensure your off-the-plan purchase is completed correctly, and we remain up to date of development milestones. Don't hesitate to contact our friendly and experiences team, or get a no-obligation quote below to start your conveyancing journey.
Disclaimer: This publication is not intended to be comprehensive, nor does it constitute legal advice. We are unable to ensure the information is current and there is no guarantee in relation to accuracy. You should seek legal or other professional advice before acting or relying on any of the content of this publication. The views and/or opinions expressed in this publication is that of the author and may not necessarily represent the views and/or opinions of RHC Solicitors.
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