Stages of buying off the plan

The upside of buying an off-the-plan townhouse or apartment should be competitive pricing compared with similar properties already built. That’s the pay-off for committing to purchase a property based on scale model, artist impressions and a floor plan.

And because its nature, the transaction process differs from buying an existing apartment or a house. 

Typically, you’ll pay a deposit of 10 per cent to reserve your purchase and then wait for construction to finish. 

Some never get started and you’ll end up with a refund and lost time in the market, which can be an expensive outcome if prices are climbing.

Lenders will not issue a mortgage until construction is finished. This means you’ll pay a deposit on the assumption the lender will support you when the time comes. That’s another risk you won’t face with a traditional purchase.

To help you navigate off-the-plan buying, we’ve outlined the process from your perspective:

Set Your Budget – Know how much you can afford before beginning this journey. Talk to your bank or a mortgage broker to discover the size of the loan you might receive from a lender.

Decide the style of property – With an idea of your spending power, focus on the location and quality of apartment you can afford. Criteria to consider:

  • Location / Views
  • Large or small development
  • Ground floor or higher level with balcony
  • Favoured floor plan, such as large living area
  • Number of bedrooms and bathrooms, en suite
  • Available facilities, such as a pool, gym and parking.

Save for a deposit – The average deposit required for a development is 10 per cent. Banks will not help you at this stage, so you need to source the cash yourself.

Check-out developments – It’s time to start shopping. Visit the sales offices of developments either in the process of being built, or those where construction has not yet started. Those that have just gone on the market usually offer better deals to incentivise early-stage buyers. Make sure a project has DA approval. Be aware that some prospective developments, even those with DA approval, may never go ahead.

Do your Research – Once you’ve found a development, do due diligence on the developer, builder and architect. Also, find out if there are similar projects in a 5km radius. These may over-supply the market, depress the value of your purchase and potentially create problems in obtaining a loan. Some quick tips:

  • Visit the developer’s website to see their previous work and any on-going projects.
  • Ask to visit finished developments
  • Do a general search, especially under the Google news tab, to see if anything controversial comes up.
  • Ask online forums about companies involved in the development. 
  • Ask the agent for the builder’s licence number so you can check their credentials online. Watch out for any suspensions, insurance claims, adverse disciplinary findings or prosecutions.

Appoint a Legal Adviser – If you’re still in the game, it’s time to consult a solicitor or conveyancer for advice about the upcoming legal work. Find an adviser familiar with off-the-plan buying and who may even know the developer. They will undertake a formal due diligence and go through the Contract of Sale. Get clarity on the many facets of the contract, including:

  • Developer’s right to alter plans (with and without notice)
  • Price and any on-costs
  • Strata title and fees
  • Stamp duty and taxes
  • Inclusion and their quality
  • Any rental guarantee promised

Seek an Independent Valuation – To make sure you’re making a sound investment, find out what portion of the price is made up of land value, which attracts most of the fees and charges. Consider using an independent valuer to validate the developer’s price. Down the track, your lender will also value the property. A mortgage will be conditional on the findings.

Reserve your apartment – A refundable payment of up to $1,000 should take your desired property off the market for 14 days. While this part of the processes can differ depending on the developer, you should be able to select your desired colour scheme and fittings and fixtures at this point. The choices can be limited so ask about this before putting your money down.

Expression of Interest  

Not every developer will allow you to reserve an apartment and instead seek from you an expression of interest. This can be made with a small, refundable payment (approx. $500). When a developer or their agents take this money, they must make clear in writing that:

  • You have no obligation to buy the property
  • Nor is the developer obliged to sell it to you
  • Monies can be refunded. 

This lack of obligation and refund means that payments can be made by multiple buyers for the same property. You must be informed if others have made a similar payment for the same property and be notified when it is sold.

Choose carefully – Ready to proceed? If you are an earlier buyer, you’ll likely have the pick of the building in your price bracket. Those with the best views go first. Some issues to consider:

  • How high do you want to go up?
  • Will it have good views?
  • Is it north-facing to get the most of the sun?
  • Are there any noise issues, such as facing on to a street or being directly above a bus stop?
  • Is there easy access to parking and other facilities?

Contract signing – The developer will send their contract to your nominated legal representative. You’ll have 14 days to negotiate, clarify any items and pay the 10 per cent deposit. Some developers will accept a bank guarantee or deposit bond, which means no cash exchanges hands. Others will insist on cash, direct deposit or bank cheque.

Construction updates – With your deposit paid and contracts exchanged, the developer will provide regular updates on construction. Communication kicks up about three months before completion and you’ll be invited to undertake a handover inspection.

Finalise your loan – You should have found a suitable loan by now and the process of making final arrangements should be simple. Be aware, lenders will not issue loans on unfinished constructions. Also, the big banks will limit their exposure to a building to no more than 15 per cent. Lastly, if your area is at risk of over-supply, the banks might baulk at the price you’re contracted to pay. This can be a real problem. So, don’t leave your financial arrangements to the last minute.

See your apartment – You’ll be invited to a pre-settlement inspection during which you must inspect the work and point out any issues. Contracts usually permit some leeway for developers in terms of changing the floor plan and even shrinking the square footage. You should have been aware of this in advance. Make sure all the fixtures and fittings are as promised. After the inspection is complete, the developer will contact your legal team to complete the transaction.

Settlement – Your legal representative will liaise with your lender and then conduct a settlement of contracts with the developer so you finally take ownership.Post-purchase issues – You have three months to complain formally. Your developer will have homeowners’ warranty insurance to compensate you if work is incomplete or defective; (plus if the developer goes broke, dies, has their building licence suspended etc.).