Caveat emptor. Translated from Latin, it means “let the buyer beware.” And when it comes to buying off the plan, it is advice worth heeding. This is because while there are plenty of advantages to buying a property off the plan – like having more time to make financial preparations and the possibility of getting a brand new property at a discount – there are also several disadvantages. Here’s what you need to know about this type of transaction in Queensland.
What is buying off the plan?
Put in its simplest terms, buying off the plan means that you are purchasing a property (usually, but not always, a residential property), either vacant land or with a home being built on it based only on the surveyor’s plans and architectural renderings, drawings or schematics. In other words, you agree to buy the property while the land is being subdivided and/or the property is being built on that newly created lot. A purchase made after construction is finalised is not classified as buying off the plan.
How is it different from a standard contract for sale?
In general, buying off the plan is riskier than making a conventional purchase due to unpredictable dynamics in the overall economy, construction industry and housing market.
Here are some more key differences that you should be aware of. The first is how long it takes to close the deal. In a traditional transaction, the contract of sale can be wrapped up in 30 to 60 days. On the other hand, it can take years if you are buying off the plan. The second is that you can’t actually inspect the property.
Accordingly, an off-the-plan contract usually includes:
- a Contract of Sale; and
- a Disclosure Statement.
As opposed to conventional contracts, off-the-plan contracts will also contain certain stipulations made by the seller. These cover any contingencies between the point when you sign the contract and the actual settlement date. Examples include contingencies for delays or construction changes. However, these are not ‘boilerplate’ (or standard) provisions. Instead, they will vary from one seller to another. Because each seller will include different sets of conditions in their contracts, we highly recommend that you consult our legal team before you sign anything.
The importance of disclosure statements
Because your inability to view the property when you buy off-plan puts you at a disadvantage, there are certain legal requirements to protect you. For one, the seller is legally obligated to provide a disclosure plan and disclosure statement with the contract of sale. By law, the disclosure statement must contain certain information, including but not limited to, the identification of the property being purchased.
The disclosure statement and contract for sale are legally binding documents. This means any party involved in the transaction must abide by it after they sign it. Furthermore, in the event of a dispute, the parties are allowed to rely on the information contained in these documents.
Additional legal and financial implications
If you are considering purchasing off the plan in Queensland, you should also be aware of property law changes that took effect in 2014. By learning about them, you’ll be able to weigh the legal and financial implications carefully and make an informed decision about what’s best for you.
The first point to keep in mind is that these changes apply to the sale of lots in Community Titles Schemes (apartments, townhouses etc) and land subdivisions.
Secondly, you may now be required to put down as much as 20% of the purchase price as a deposit when you buy off the plan. These deposits must be kept in a trust account belonging to a lawyer or real estate agent and can be released in the event of a dispute as long as proper notification is made.
There are also important stipulations about the preparation of disclosure plans. These must now be prepared by a cadastral surveyor. That means architectural plans no longer meet the disclosure requirements for plans.
Any amendments to disclosure plans must also be prepared by a cadastral surveyor. Notice of any changes must be provided at least 21 days before settlement and the changes must be explained in simple language.
If you are significantly affected by the changes, you have the right to end the contract by giving written notice to the seller within 21 days. However, you must be able to prove that you were “materially prejudiced”.
Doing your due diligence
It doesn’t matter whether you take a conventional approach or buy off the plan. Buying a home is the single largest financial commitment anyone ever makes. This means it’s essential to do your due diligence. Use commonsense. Make sure that you’ve saved enough for a deposit and you can be approved for a loan before you take the plunge. This is especially important when buying off the plan because of the amount of time it takes to close the deal and the volatility referenced above.