Your Guide to Buying off the Plan in Australia

Chris Modderno, Content Writer

First published 25 June 2021, 12:00 PM

Learn everything you need to know about buying off the plan. Here we go through what’s involved, the benefits and risk, to get you prepared for buying off the plan.

What does "buying off the plan" mean?

Buying off the plan means entering into a contract to purchase a property before the property title is created and construction is complete or has even started. This can include the sale of vacant land, house and land packages and strata properties.

What are the Benefits of Buying off the plan?

Time to save

When buying off the plan, during the time spent in construction you may get additional time to save for future repayments while your property has already been secured. In some cases, you may even see the value of the property increase at the time of settlement.

Deposit

In some cases you may have the option to hold your deposit in a trust account until after completion. Depending on your developer agreement, you may be able to secure your property with a deposit bond from your bank to keep your savings in an interest earning account until settlement.

Developer discounts

When buying off the plan, many developers will offer a discounted price if you choose to commit to the purchase of the property early in the process - sometimes even before construction begins.

Government Grants

If you’re a first home buyer and are looking to buy off the plan, not only are you potentially eligible for stamp duty concessions as explained above, but there are some government grants that may apply to you. The First Home Owner Grant (FHOG) for instance applies in most states to first homeowners buying or building a new property, including off the plan purchases. Additionally, you may be eligible for the First Home Loan Deposit Scheme (New Homes), as the recent new home guarantee has included the option to apply for this scheme with an off the plan purchase. If eligible you can apply for your home loan with a deposit of 5%.

What are the Risks of Buying off the Plan?

Construction delays

One of the risks of choosing to buy an off the plan property is that unexpected delays to the construction can occur. If this happens it can affect your plans, leaving you in need of temporary accommodation or for investors can affect the amount of rental income you were anticipating.

To combat the possibility of construction delays, many off the plan contracts will include a “sunset clause”. A “sunset clause” essentially sets a specific date that the property will be completed by or the contract can be voidable and therefore your deposit would be refunded.

Builder bankruptcy

Another possible outcome with buying off the plan is if the developer you have signed the contract with goes bankrupt. In the event of this you may not get your deposit back, depending on the terms of your contract.

Development quality

As you are buying your property before it is being built, you do not get the chance to see the property. Therefore, there is a possibility that the finished property does not align with your expectations.

Market changes

When buying off the plan as you’ll have to wait for the construction of the property, there is a chance that the market conditions will change when the house is completed and you receive your mortgage. It’s important to understand that your final property value could be lower than first estimated resulting in an effect on your LVR and interest rates could also be higher, affecting your expected repayments.

Financial situation changes

Similar to the above risk, it is possible that there are changes to your financial situation from the time you sign the contract to the end of construction that could affect the amount you were originally pre-approved for.

Off the Plan Home Loans

When buying an off the plan property the home loan process can be slightly different. If you buy an off the plan home you will be required to provide a deposit - in the form of a bank guarantee or cash deposit - usually of 10% of the contract price. Similar to buying an established property you will receive your home loan on the settlement date, however, for off the plan purchases this could be in months or even years time depending on the development process.

Off the Plan Mortgage Approval

As you’ve signed into a contract to take out these funds once the property is built, it is best to speak with a Mortgage Choice broker who can assist you with gaining pre-approval on your home loan. Getting pre-approval for your mortgage when getting an off the plan property will allow you to understand what you can borrow and your repayments after construction.

While your property is under construction, as a period of time will pass, your broker can meet with you to reconfirm your financial position and reapply for pre-approval if needed.

Find out in minutes how much you can borrow and the costs involved with our free home loan quote!

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Buying Apartments off the plan

Buying an apartment off the plan is a similar process to houses, although there are some key differences to be aware of. When buying an apartment off the plan there will still be strata costs associated and your developer will provide you with the schedule of strata fees. This schedule may or may not include the sinking fund fee. The other main consideration with apartments compared to houses, is that an apartment will typically take longer to complete than houses. When buying a house off the plan the construction is likely to take between 6-18 months, whereas apartment construction consists of the whole building and multiple units and therefore can usually take between 2-5 years to complete.

Buying off the Plan in Melbourne & Victoria

If you’re looking to buy off the plan in Melbourne and Victoria it’s important to be aware of new laws passed by the Victorian Government in 2019. The Sale of Land Amendment Act 2019 (the Act) was passed to restrict developers to only be able to use a sunset clause with written consent from the buyer, or permission from the Supreme Court of Victoria.

These laws are great to know when looking to buy off the plan as they are intended to protect you as the buyer from your contract being cancelled intentionally by a developer with the intent to re-sell the property at a higher price.

Buying off the Plan in Sydney & NSW

Similar to Victoria, the NSW Government has passed changes to the laws relating to buying off the plan contracts in Sydney and NSW. The Conveyancing Legislation (Amendment) Act 2018 and Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW) have made changes to further protect buyers from 1 December 2019.

The key safeguards to these laws:

Disclosure statement

To be provided with the contract outlining key information such as sunset dates and other conditional dates,the draft plan showing lot number, location, and area of property. In addition the draft floorplan, the site of any proposed easement, any proposed bylaws, development contract and management statement, and schedule of finishes must also be provided.

Notification

Your developer must notify you of any changes that occur during development that make what was disclosed inaccurate in a “material particular”.

A material particular is: a change to the lot number, a change in street name, a change to, or the inclusion of a provision for the allocation of the costs of shared expenses under a management statement, subject to ensuring "the fair allocation of the costs of shared expenses relating to parts of the building", a change to the location of a strata parking or storage area, but only if the change is made in accordance with the terms of the contract.

If there is a change to a material particular, a notice of changes must be served at least 21 days before completion.

Cooling off period

Off the plan contracts will have a 10 business day cooling off period - twice as long as buying an existing home.

Deposits

Any deposit funds or instalments made for an off the plan contract must be held by a stakeholder - such as your real estate agent - in a trust or controlled monies account and may be invested in accordance with the terms of the contract. The deposited funds are only released to the developer upon settlement. This protects you in the event of your developer going bankrupt, but will not prevent you from using a deposit bond if negotiated with your developer.

Sunset clause

The developer will only be able to exercise a sunset clause with written consent from the buyer, or permission from the Supreme Court of NSW, or the rescission comes within a category prescribed by regulations (no regulations have yet been made).

They must give notice in writing with the reasons for recission.

Stamp Duty when Buying off the Plan

When buying off the plan, you have the option to defer your stamp duty payment for up to 12 months (compared to 3 months for existing properties) giving you extra time to save up these costs. In some circumstances for first home buyers, you may even be eligible to receive concessions off stamp duty or have your stamp duty completely waived when buying off the plan, however, this can vary depending on your state.Use our stamp duty calculator to find out how much you could pay here.

Questions to Ask when buying off the plan

Buying off the plan needs to be a carefully considered purchase as you are effectively purchasing a property where the end product can differ from your expectations and may even be worth less than you paid by the time it is finished. Therefore it’s important to do adequate research and obtain appropriate legal or other advice before signing any documents or paying any money.

At this stage it’s best to get the relevant information to you, and ask some of the essential questions when buying off the plan, including:

When will the construction be complete?
What is the sunset clause?
What can i customise with the property?
What’s included in the property?
How much are the levies/strata fees for the apartment?
What is the developer’s history of success/completed products?

It is important to ask these types of questions to the developer you choose to go with and your solicitor. And don’t forget to speak with your Mortgage Choice Broker when planning your off the plan process to understand what your pre-approval limit can be and help find the right loan for you.