Disclaimer:
The information on this website is for general guidance only and does not constitute financial or investment advice. Always do your own research and seek personalised advice from a qualified financial adviser or mortgage adviser before making financial decisions. All investments carry risk and past performance is not indicative of future results.
Key Takeaways
- Off-the-plans purchases carry market and timing risks.
- Fixed prices can still shift with escalation clauses.
- Review sunset clauses to avoid unexpected cancellations.
- Research the developer and stage of the build.
- Legal advice is essential before signing.
Buying off the plans generally means signing a contract before the home is completed, based on plans, specifications and contract documents. A turnkey home may be completed later and ready to move into at settlement, but it is not a finished home when you sign. Some contracts are marketed as fixed-price, but buyers should check the contract for variation, escalation, sunset, finance, settlement and specification clauses before relying on that.
Why First Home Buyers Consider Buying Off The Plans
Some buyers may find an off-plan or turnkey purchase more straightforward than a land-and-build contract, but finance still depends on lender criteria, valuation, settlement timing, deposit, income, expenses and the final property. Buying before construction is completed may give you the opportunity to purchase a brand new property, but the contract, price, specification, finance, settlement and build risks still need careful review.
New homes must be built to the applicable Building Code and consented plans, but buyers should still check the plans, specifications, warranties, developer track record and independent advice. Building Performance says residential building work is covered by implied warranties for up to 10 years, but how those rights apply can depend on the contract, parties, defect, timing and enforcement pathway.
The Cons of Buying Off The Plans
- There is a risk that the property market could decline during the build period so that when you take possession of your property, you are paying above current market value.
- Losing your deposit is a risk if you try to exit a contract when you are legally bound to settle, without using a valid option to exit the contract.
- Soaring construction prices and the issues that can come with entering into contracts means there is a need for greater scrutiny for added protection.
What To Look Out For
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Undertake Due Diligence on the Developer
What is their reputation like? Have there been articles in the media about this developer backing out of contracts or using delay tactics? What is the quality of their contractors' work like in past projects? Do your research online, ask friends and family, and check forums where first home buyers discuss their experiences.
What Stage is the Development At?
Very early-stage developments can carry extra uncertainty, so buyers should understand the stage of the project, approvals, funding, sunset dates, specification risk and their own finance timing before signing. There can be no guarantee that the plan you see will be the final product.
Key Contract Clauses To Understand
Force Majeure Clause
A force majeure clause allows relief to certain parties if events outside that party's control prevent them from fulfilling their obligations. These clauses can matter where events outside a party's control delay or prevent performance, so buyers should ask their lawyer how the specific clause works. Common events include earthquakes, volcanic eruptions, severe flooding, or pandemics. Developers often include a catch phrase such as "and any other events beyond the developer's control."
Price Escalation Clause
A price escalation or variation clause may allow the price or scope to change if the contract permits it. The effect depends on the clause wording, triggers, notice requirements and buyer rights. Before cancelling a contract under an exit clause, some sellers may offer purchasers an option for the contract to continue if the price is increased, but the available options depend on the contract and legal advice.
Sunset Clause
A sunset clause is a condition that provides that if a specified event has not occurred by a specific date, then either one or both parties can cancel the contract. When buying off the plans, a sunset clause may benefit one or both parties depending on the drafting. Buyers should check who can cancel, when, for what reason, and what happens to the deposit.
Our Recommendation
Good legal advice can help identify undesirable clauses, explain the risks, and suggest changes before signing, but the seller must agree to any amendments. Some contracts may include exit or variation clauses that affect the buyer if additional costs are not agreed to down the track. Your lawyer can help explain those clauses and what changes may be worth requesting.
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Frequently Asked Questions
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