Frequently Asked Questions: Buying An Apartment Off-the-Plan
August 10 2023
What is buying off the plan?
Buying off the plan refers to purchasing a property or real estate before it has been constructed or completed. In this scenario, buyers typically enter into a contract with the developer or builder based on the plans, designs, and specifications of the property that is yet to be built.
The process typically involves paying a deposit upfront, often a percentage of the total purchase price, and then making further payments throughout the construction period. The final payment is usually made upon completion of the property, when the buyer takes possession and the title is transferred.
Can a buyer negotiate on price when purchasing an apartment off-the-plan?
No. Prices are set based on a project’s feasibility costs, which include the land acquisition as well as build costs. However, depending on the stage at which a purchase in the development is made, negotiations can be held around minor floor plan changes, fixtures and finishes and contract terms.
What is the process for buying off-the-plan and how much deposit is required?
An initial holding deposit of $10,000 is paid upon signing an expression of interest (EOI) form. Once this is paid, a contract will be issued to the purchaser’s solicitor for review.
Once the terms are agreed and the contract signed, 10 per cent of the final purchase price, minus the $10,000 holding deposit, must be paid to make the contract unconditional. The balance of the transaction is payable upon settlement, so one of the most appealing aspects of buying off-the-plan is that there are no progress payments as construction progresses.
Where is my deposit held and will it earn interest? If so, who receives the interest?
The deposit will be held safe and secure in a trust account sitting with the developer’s solicitor. The deposit will earn interest, but being in a secure trust account, the yield is very low. Buyers should ensure their legal representative specifies in the contract that any interest earned on the deposit be paid to the purchaser, who will need to provide their tax file number.
What happens if the developer goes bust and doesn’t complete the project?
If the developer does go bust or the project is no longer financially viable, under the terms of the contract the 10 per cent deposit is fully refunded.
What happens if the builder goes bust?
Under the terms of the contract, if the builder goes bust the developer is within their rights to appoint another to take over the work for completion.
What happens if construction costs increase throughout the build process?
When a buyer signs a contract, the price is locked in. If a developer encounters rapid build cost increases, for example the recent escalation of material and labour costs, they can request more money to keep the project financially viable.
If a project is deemed financially unviable, buyers’ contracts can be terminated with the deposit paid back in full. Seek legal advice to determine individual rights under the contract of sale.
If the building doesn’t sell out, will it still be completed?
It is common for buildings not to sell out prior to completion. As long as a developer secures enough sales for financial close, this is all that is required for a project to progress to completion.
Are there any other risks with an off-the-plan purchase?
Construction timelines and environmental circumstances can extend the anticipated date of completion. Material availability, machinery availability and the weather can all impact construction timelines.
What is the process leading up to settlement?
Updates will be provided throughout the construction process. When the building is close to completion, buyers will be informed to get their finance ready.
A pre-settlement inspection will take place to identify any defects and have them fixed prior to moving in. Once a certificate of occupancy has been issued, settlement will be called.
Can buyers inspect an apartment before settlement?
Most contracts allow for one inspection in addition to the pre-settlement inspection.
Can a buyer on-sell an apartment before settlement?
Yes. However, some developers will request this in writing prior to it going to market.
Can amendments be made to apartment floor plans?
It depends on the project but in most circumstances, yes. It is recommended this is done prior to signing a contract. Any changes above and beyond the standard inclusions will be subject to quote and a variation made under the contract’s special conditions.
What else should be considered before buying an off-the-plan apartment?
Always undertake due diligence on the team involved and their track record, including, but not limited to, the developer, the architect and the builder.
How is the market?
The fundamentals of supply and demand are very strong, with a severe housing shortage driven by increased interstate migration. Quality projects in desirable locations always continue to transact.
What terminology should I get familiar with?
When buying an apartment off the plan, understanding the following key terminology can be helpful:
Off-the-plan contract: This is the legal agreement between the buyer and the developer for the purchase of the apartment before it is constructed. It outlines the terms, conditions, and specifications of the property.
Sunset clause: A sunset clause sets a timeframe within which the developer must complete the construction of the property. If the construction is not completed within this timeframe, the buyer may have the option to terminate the contract and receive a refund of their deposit.
Deposit: The deposit is the initial payment made by the buyer to secure the purchase of the apartment. It is usually a percentage of the total purchase price and is typically paid upfront.
Cooling-off period: This is a period after signing the contract during which the buyer can change their mind and withdraw from the purchase without any significant penalties. The length of the cooling-off period can vary depending on local laws and regulations.
Strata title: In many cases, apartments are sold under strata title ownership, which means that buyers own their individual unit and have shared ownership of common areas and facilities within the building or complex.
Body corporate: This refers to the collective group of owners within a strata-titled property. The body corporate/owners’ corporation is responsible for managing common areas, facilities, and the overall administration of the property.
Fixtures and finishes: These are the specifications and details regarding the materials, fittings, and finishes that will be used in the construction of the apartment. It is important to understand what is included in the purchase price and what additional options or upgrades may be available.
Progress payments: When buying off the plan, the purchase price is often paid in stages or progress payments throughout the construction period. These payments are typically based on specific milestones or stages of completion.
Title transfer: The title transfer occurs when the construction is complete, and ownership of the apartment is officially transferred from the developer to the buyer. At this point, the final payment is made, and the buyer takes possession of the property.
Understanding these key terms will help you navigate the process of buying an apartment off the plan and ensure that you are well-informed and prepared for the transaction. It is advisable to consult with professionals such as lawyers, real estate agents, or conveyancers who can provide specific guidance based on the local regulations and practices in your area.
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