Buying off the plan: what to check before you sign

Buying off the plan means signing a contract for a home that does not exist yet, paying a deposit now and the balance when the building is finished, often two or three years later. The price is fixed at signing, which is the attraction. The risks sit in the contract, which is longer and more one-sided than a standard contract, and in what can change between signing and completion. Here is what we check.

The sunset date and the sunset clause

Every off-the-plan contract has a sunset date by which the plan must be registered or the building completed. If it is not, either party may be able to end the contract. For years developers used sunset clauses to walk away from sales that had become unprofitable and resell at a higher price. New South Wales, Victoria and Queensland have all legislated against that: a developer can no longer rescind under a sunset clause without the buyer's written consent or a court order, and must give notice with reasons. The clause still matters for you, because a sunset date four years out is four years of your deposit being tied up and your circumstances changing. We check the date, the extension rights and the notice provisions.

Changes to what you are buying

The contract will allow the developer to vary the plan, the finishes and the inclusions, and the question is by how much. We look at the limits on changes to the lot's size and layout, the substitution clauses for finishes and appliances, what happens to car spaces and storage, and your rights if a change is material. In NSW the developer must notify you of material changes and you may be able to rescind or claim compensation; in Victoria and Queensland the contract's own clauses and the disclosure rules do most of the work, so the wording matters.

Disclosure and the cooling-off period

NSW requires a disclosure statement with the draft plan, the proposed by-laws and the schedule of finishes, and gives off-the-plan buyers a ten-business-day cooling-off period rather than five. Victoria requires the section 32 vendor statement plus the plan of subdivision, and the three-business-day cooling-off period applies. Queensland requires the seller disclosure statement and the body corporate disclosure for a unit, with the five-business-day cooling-off period. We review all of it with the contract.

The deposit

The deposit is usually 10 per cent and is held in a trust account, or secured by a bank guarantee or deposit bond, until completion. We confirm where it is held and that it cannot be released to the developer early, because if the developer fails before completion the deposit's safety is the difference between a disappointment and a loss.

Finance at completion, not at signing

Your lender will not give unconditional approval years ahead of settlement. Approval and the valuation happen close to completion, at the value then, not the contract price. If the market has fallen or your circumstances have changed, the shortfall is yours to fund. We flag this early and recommend buyers keep a buffer and talk to their broker before signing.

Stamp duty on an off-the-plan purchase

Duty is assessed on the contract price in all three states, but the timing and the concessions differ. In NSW an owner-occupier can defer payment of transfer duty on an off-the-plan residential purchase for up to 12 months after signing, or until completion if earlier. In Victoria an off-the-plan concession reduces the dutiable value by the construction not yet carried out at the contract date; its scope and eligibility have changed several times, so we confirm what applies on the day you sign. In Queensland duty is payable on the full price within 30 days of the contract becoming unconditional, with the home and first home concessions available if you qualify. First home buyer exemptions in each state apply to new homes bought off the plan if the price is under the threshold.

Defects and warranties

A new building comes with statutory warranties and, for strata buildings, defect bond and inspection regimes that vary by state. We check the contract's defect period, how defects are notified and what the developer must do, and we recommend an independent inspection before settlement so that defects are recorded while the developer is still obliged to fix them.

Settlement

Completion is triggered by registration of the plan and issue of the occupation certificate or equivalent, usually with 14 to 21 days' notice. That is not long to arrange finance, a valuation and a final inspection, so we prepare well before the notice arrives. Settlement is electronic, as for any purchase.

What Settle Easy charges

Off-the-plan contracts take more work than a standard purchase. Our professional fee for an off-the-plan residential purchase is $2,200 plus GST with a $660 contract review charged in addition, agreed before we start, with government and search costs passed on at cost. See the service and fee schedule, or get a fixed-fee quote.