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, typically on a parcel of land that hasn’t yet been registered, based on the developer’s plans, specifications, and 3D renderings of how the property might look.
Off the plan property purchases offer potential benefits such as capital gains and tax benefits, but there are also risks involved, such as defects in the build, construction delays, developer insolvency, and the potential for the value of the property to decrease.
There are some additional risks where buying ‘off the plan’ in Queensland, which highlights the importance of thorough research and seeking out legal advice before you enter 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’
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 this course of construction.Bank Guarantees
In Queensland you are typically required to pay a 10% deposit on an ‘off the plan’ contract, which can be a considerable amount. However, many developers will accept that a deposit be paid by way of bank guarantee, rather than the traditional cash deposit. Essentially, to take out a bank guarantee, you are providing your cash deposit to the bank to be invested in a term deposit, and you will continue to accrue interest on your savings until the development complete. At settlement, this means that you will have to provide 100% of the price and your bank guarantee would then be returned at or following settlement.More Time to Prepare for Settlement
Off-the-plan projects can often take up to a few years before settlement occurs. This gives purchasers more time to save and get their finances in order.Government grants
In Queensland, first home buyers can receive up to $30,000.00 towards their purchase of a newly built home under the first home owner’s grant.Depreciation Tax Benefits
Investors may be eligible to claim tax deductions for their ‘off the plan’ property’s fixtures and fittings.Sunset Clause
In Queensland, an ‘off the plan’ contract’s sunset date is mandated by legislation. For community titles schemes, such as units and townhouses, the statutory sunset date is the date that is 5 and ½ years after the contract date. The statutory sunset dates offer some protection for buyers in that, if the contract is not settled by the sunset date, then either party will be able to terminate the contract without penalty.
For vacant land sales, the statutory sunset date is the date that is 18 months after the contract date. If an ‘off the plan’ contract for vacant land is not settled by the sunset date, then the buyer may terminate the contract without penalty. Previously, sellers of ‘off the plan’ vacant land contracts could also terminate these contracts if they weren’t settled by the sunset date. However, the Queensland Government has recently passed laws changing sunset clause rules to strengthen protections when signing off-the-plan contracts for the sale of land (not including community title schemes such as apartments). From 22 November 2023 off-the-plan land sale contracts can only be terminated using a sunset clause by sellers:
● with the written consent of the buyer
● under an order of the Supreme Court, or
● in another situation prescribed by regulation.
These reforms follow consultation with consumers, property developers and peak bodies completed in 2022 and 2023. We understand the government intends to review the reforms in 1 to 2 years. The review will consider whether further reforms are required to protect people buying proposed community titles and similar lots off the plan.
RISKS OF BUYING ‘OFF THE PLAN’
Potential for Capital Loss
Just like the potential for the property to increase in value, there is also risk that the value of the property could decrease by the time it is completed, especially if the market experiences a downturn.Developer Risks
The developer may face financial difficulties or delays in completing the project, which could lead to your property being completed late or not at all. This is why it is so important to conduct due diligence on the developer before signing an ‘off the plan’ contract.Financing Challenges
In Queensland most developers won’t agree for a finance condition to be included in the ‘off the plan’ contract. If they do agree, then they typically will only allow for a 14 – 30 day finance condition. Lenders may offer conditional finance approvals for off-the-plan purchases within this stipulated timeframe; however they won’t offer unconditional finance approval until they have had a chance to value the property once it is completed. This means that your conditional finance approval could subsequently be denied by the time the property is completed if market conditions or your financial situation change.Variations
Most ‘off the plan’ contracts in Queensland include variation clauses, which allow the developer to make variations to the size and location of the property, any exclusive use areas (like car parks and storage areas), and the finishes and specifications.Land Tax Apportionment
Most ‘off the plan’ contracts in Queensland also include specific clauses which allows for the seller to apportion the cost of their land tax between themselves and the buyer at settlement. The inclusion of this provision has become industry norm in Queensland for ‘off the plan’ contracts and unfortunately it exposes buyers to the risk of an apportionment for the developer’s land tax which could range from a couple of hundred dollars to thousands.Construction Delays
Many ‘off the plan’ projects face construction delays and buyers may be waiting for years before they can move into their new property.Quality Concerns
The finished property may not match the initial expectations in terms of quality in workmanship. While most contracts do contain a defects clause which provides for the developer to remedy any defects within three months of the settlement date, it can sometimes be difficult to enforce this if your developer is not willing to remedy the defects.Contracts Favour Developers
In Queensland, most properties are sold using the standard form REIQ contract which provides for industry accepted terms and conditions which are fair and transparent for both buyer and seller. Unfortunately, these contracts are not suitable for ‘off the plan’ properties, and these properties are instead offered for sale using a non-standard prepared by the developer’s solicitor.
It is important to reiterate the fact that the developer’s solicitor has prepared the ‘off the plan’ contract – this means in general the terms that are outlaid in the contract are heavily weighted towards the developer’s benefit. In particular, many ‘off the plan’ contracts in Queensland include specific clauses which allow the seller to unilaterally terminate for various reasons, including where the developer considers the project is no longer financially viable. In some cases, these clauses could be in contravention of the new unfair contract reforms introduced by the federal government in November 2023, which is why it is so important that buyers seek specialist legal advice before signing an ‘off the plan’ contract in Queensland.Sunset Clauses
While sunset clauses are beneficial for buyers in some instances, they can also be used as a weapon against buyers in ‘off the plan’ contracts. We have seen huge capital gains for buyers purchasing ‘off the plan’ properties following the recent changes in the market post COVID-19. Unfortunately, we have also seen developers and their building contractors face severe financial distress due to increase building and labour costs post COVID-19. This has resulted in developers deliberately drawing out construction past the sunset date and then terminating the contract, with the aim to re-sell the properties at an increased price in the new market. This is particularly prevalent in community titles scheme properties (like units and townhouses) as currently there is nothing preventing developers from unilaterally terminating the contract if settlement has not been completed by the sunset date. This is why it is so important that the Queensland Government revisit their recent reforms to sunset clauses in Queensland, so that sellers in ‘off the plan’ contracts are also only able to terminate the contract after the sunset date:
● with the written consent of the buyer
● under an order of the Supreme Court, or
● in another situation prescribed by regulation.
To mitigate these risks, it's crucial to conduct thorough research, understand the contract terms, review the developer's track record, and consider seeking legal and financial advice before committing to an off-the-plan purchase.
Robbins Watson Solicitor’s expert property and conveyancing lawyers are specialised in reviewing and negotiating ‘off the plan’ contracts in Queensland to ensure that contract terms are fair and just for buyers.
Please do not hesitate to contact Robbins Watson Solicitors on 07 5576 9999 if you need expert advice on your next ‘off the plan’ purchase.
Emma Post – Property and Conveyancing Solicitor
07 5576 9999