Buying a property ‘off the plan’ means paying a deposit and entering into a contract to purchase a property that hasn’t been built yet. Buyers usually purchase based on the developer’s plans, specifications, and 3D renderings of how the property may look.
Off the plan property purchases offer potential benefits such as capital gains and tax benefits. However, they also involve risks, including building defects, construction delays, developer insolvency, and the possibility of the property decreasing in value.
Buying ‘off the plan’ in Queensland also carries additional risks. This highlights the importance of thorough research and obtaining legal advice before entering into an ‘off the plan’ contract with a developer.
Here’s a quick overview of the benefits and risks of buying ‘off the plan’ in Queensland.
Benefits of buying ‘off the plan’
1. Potential capital gain
One of the biggest benefits of buying ‘off the plan’ in Queensland is the potential for the property to increase in value during construction.
2. Bank guarantees
In Queensland, buyers are typically required to pay a 10% deposit on an ‘off the plan’ contract. This can be a considerable amount. However, many developers accept a bank guarantee instead of a traditional cash deposit.
To obtain a bank guarantee, you generally provide your cash deposit to the bank to invest in a term deposit. You can continue earning interest on those savings until the development is complete.
At settlement, you will need to provide 100% of the purchase price. Your bank guarantee is then returned at or after settlement.
3. More time to prepare for settlement
Off-the-plan projects can often take several years before settlement occurs. This gives purchasers additional time to save money and organise their finances.
4. Government grants
In Queensland, first home buyers can receive up to $30,000.00 towards the purchase of a newly built home under the first home owner’s grant.
5. Depreciation tax benefits
Investors may be eligible to claim tax deductions for fixtures and fittings included in their ‘off the plan’ property.
6. Sunset clause
In Queensland, legislation mandates the sunset date for ‘off the plan’ contracts. For community title schemes, such as units and townhouses, the statutory sunset date is 5 and ½ years after the contract date.
These statutory sunset dates provide some protection for buyers. If settlement does not occur by the sunset date, either party may terminate the contract without penalty.
For vacant land sales, the statutory sunset date is 18 months after the contract date.
If settlement does not occur by the sunset date for vacant land, the buyer may terminate the contract without penalty.
Previously, sellers could also terminate vacant land contracts if settlement did not occur by the sunset date. However, the Queensland Government introduced reforms to strengthen buyer protections for off-the-plan land contracts.
From 22 November 2023, sellers can only terminate off-the-plan land sale contracts using a sunset clause:
- with the written consent of the buyer
- under an order of the Supreme Court, or
- in another situation prescribed by regulation.
These reforms followed consultation with consumers, developers, and industry bodies during 2022 and 2023.
The government also intends to review the reforms within 1 to 2 years. The review will consider whether further protections are needed for buyers purchasing proposed community title lots off the plan.
Risks of buying ‘off the plan’
1. Potential for capital loss
While a property may increase in value during construction, it may also decrease in value before completion, particularly during a market downturn.
2. Developer risks
Developers may experience financial difficulties or construction delays. These issues can result in projects finishing late or not being completed at all.
For this reason, buyers should conduct thorough due diligence on the developer before signing an ‘off the plan’ contract.
3. Financing challenges
Most developers in Queensland will not agree to include a finance condition in an ‘off the plan’ contract.
If they do agree, they usually only allow a short finance condition period of 14 to 30 days.
Lenders may provide conditional finance approval within this timeframe. However, they often wait until construction is complete before granting unconditional approval and valuing the property.
As a result, your finance approval could later be denied if market conditions or your financial circumstances change.
4. Variations
Most ‘off the plan’ contracts in Queensland contain variation clauses. These clauses allow developers to alter the size or location of the property, exclusive use areas, finishes, and specifications.
5. Land tax apportionment
Many ‘off the plan’ contracts in Queensland also include clauses allowing sellers to apportion land tax between themselves and the buyer at settlement.
This practice has become common in Queensland. Unfortunately, it can expose buyers to unexpected costs ranging from hundreds to thousands of dollars.
6. Construction delays
Many ‘off the plan’ projects experience construction delays. Buyers may wait years before moving into their new property.
7. Quality concerns
The finished property may not meet the buyer’s expectations regarding workmanship or quality.
Most contracts contain a defects clause requiring developers to fix defects within three months of settlement. However, enforcing these obligations can sometimes prove difficult.
8. Contracts favour developers
Most standard property sales in Queensland use the REIQ contract, which contains industry-accepted terms considered fair for both parties.
However, developers usually sell ‘off the plan’ properties using non-standard contracts prepared by their own solicitors.
Because the developer’s solicitor prepares the contract, many terms heavily favour the developer.
Some contracts even allow developers to unilaterally terminate agreements for various reasons, including financial viability concerns.
Certain clauses may also breach the unfair contract reforms introduced by the federal government in November 2023.
This is why buyers should obtain specialist legal advice before signing an ‘off the plan’ contract in Queensland.
9. Sunset clauses
Although sunset clauses can benefit buyers, developers may also use them against buyers in some circumstances.
Following the post-COVID-19 property market changes, many buyers experienced significant capital gains on ‘off the plan’ purchases.
At the same time, many developers and builders experienced financial pressure due to rising construction and labour costs.
In some cases, developers deliberately delayed construction beyond the sunset date and then terminated contracts so they could resell properties at higher prices.
This issue is especially common in community title schemes such as apartments and townhouses because current laws still allow developers to terminate contracts once the sunset date passes.
This highlights the need for the Queensland Government to revisit recent sunset clause reforms.
To reduce these risks, buyers should conduct thorough research, carefully review contract terms, investigate the developer’s track record, and seek legal and financial advice before committing to an off-the-plan purchase.
Robbins Watson Solicitor’s expert property and conveyancing lawyers specialise in reviewing and negotiating ‘off the plan’ contracts in Queensland to ensure contract terms are fair for buyers.
Please contact Robbins Watson Solicitors on 07 5576 9999 if you require expert advice on your next ‘off the plan’ purchase.
