Buying Off The Plan Your comprehensive guide to buying residential or investment property off the plan. For more information on your personal needs please call or email: P: +61 7 3358 2399 І E: [email protected] Table of Contents Overview to buying “Off the Plan” ….3 Standard forms and due diligence….4 Community Living ..….……………………5 Deposits…………….………………..……….6 Finance…………….………………….………7 Sunset clauses and cooling off periods………….……………………..……8 Why choose Conveyancing Queensland?...........9 An Overview: Buying “Off The Plan” Buying a property “off the plan” is the purchase of a property which is either not fully constructed or for which construction has yet to commence. It derives its name from the fact that the only detail you have of the property is obtained from the marketer’s glossy brochures or “off the (proposed) plan” which is intended will be registered when the project is completed. Buying “Off the Plan” is a popular way to invest in residential property in Queensland. Purchasers can lock in a purchase price for their new home or investment property months, or even years, prior to completion of the property. There are a number of advantages for purchasing a property in this manner as not only are you purchasing a brand new property, but you often have the opportunity to customise it to your own specific requirements and you can potentially benefit from any capital gains generated during construction, i.e. paying current market price for a property that will be worth more when completed in the future. “ customise it to your own specific requirements ” Quality Conveyancing – Done Right! An Overview: Buying “Off The Plan” cont... An additional benefit is that a long settlement phase also allows the buyer time to realise assets or raise the finance needed to complete the purchase in an ordered manner and without pressure of an imminent settlement date. “ the building, fittings and fixtures can be depreciated and at better rates than for older or “pre-owned” properties ” Buyers intending to purchase a new property as an investment, generally qualify for depreciation allowances as the building, fittings and fixtures can be depreciated and at better rates than for older or “pre-owned” properties. For information on the depreciation advantages available to property investors, contact your accountant or quantity surveyor. . Quality Conveyancing – Done Right! Standard forms and Due diligence Due to the complexity of describing the property and the requirements of consumer protection legislation, the Standard Law Society/ REIQ contract is not suitable for “Off the Plan” purchases. Developers therefore create separate contracts with each development they undertake. These contracts, whilst following the same general format, are all different and can even show variances between different developments undertaken by the same developer. It is therefore essential that these contracts be checked by your Solicitor and that you receive suitable advice before entering into them. If you are uncertain in any way about the contents of the documents you can request the insertion of a clause stating that the contract is subject to your carrying out further enquiries and the approval of your Solicitor of the contract. This is referred to as a “Due diligence” clause. “ It is therefore essential that these contracts be checked by your Solicitor ” Quality Conveyancing – Done Right! Standard forms and Due diligence cont... There are a number of risks associated with buying a lot which does not exist at the time of contract. In particular:representations about the lot (area, location, view) cannot generally be confirmed until the building is constructed. This means that there could be changes to the floor plan, size and configuration of the lot. The contract will usually contain a right for the Developer to make minor alterations to the lot and building in order to comply with local government requirements or commercial exigencies. These changes may not only affect your unit directly but may also have an impact on traffic flow, views, light,positions of carparks and storage areas etc. These changes are not always evident or quantifiable until the project nears completion and thus any rights you have to rescind the contract may be a hollow victory. Suddenly you are back in the market looking for a property, your deposit has been tied up for maybe 12 to 18 months and it is highly unlikely that you will have a right to damages. It is unusual for a buyer to be able to terminate their contract at, or prior to settlement, unless the lot is substantially different from that “illustrated” in the original plans (and disclosure material ) provided at the time of contract. “ there could be changes to the floor plan, size and configuration of the lot . Quality Conveyancing – Done Right! ” Community Living As you will be buying off the plan, you will be buying into a complex with other people all living within the confines of the development area. To enable Residents to live in harmony requires rules and regulations. “ the CMS should also be perused and approved by your Solicitor These are contained generically in legislation and also particularly for your development in the CMS “Community Management Statement” for the complex. This will contain such issues as whether you are allowed to keep pets and the restrictions on use of common property such as swimming pools gyms and saunas. For obvious reasons this should also be perused and approved by your Solicitor Quality Conveyancing – Done Right! ” “ Deposits Who receives the benefit of the interest from the deposit will depend on the contract The first step when entering into such a contract is that you will be asked to declare your “Expression of Interest” prior to receiving the sales documents for the real estate. This is a simple form which you complete with the purchaser’s name/address and other details. Often you will be asked for an initial or “Holding deposit”. This will usually be a nominal amount of one or two thousand dollars. This initial deposit is fully refundable if you find that you are unable to proceed past this stage. Please ensure that this is being paid to a Solicitor’s or real estate agent’s statutory trust account. Later (often upon signing the full contract or at least when your finance is approved) you will be asked for the balance of deposit. The amount of this will depend on the development and the market conditions at the time, but will traditionally be set at 10%. As the project will take a long time, the deposits are placed on deposit until settlement. Who receives the benefit of the interest from the deposit will depend on the contract and it is therefore imperative that you or your Solicitor check this. Deposits can also sometimes be paid by way of Bank deposit bond or guarantee. Banks issue deposit bonds for a fee and will often ask for security. You will need to check if issuing a bond is commercially advantageous, sometimes the costs involved are more than the interest earned.. Quality Conveyancing – Done Right! ” Finance No bank or financial institution will grant finance unconditionally 18 months out on the security of the investment alone. Finance will generally be granted subject to: “ valuation ( done upon application for the finance but obviously confirmed upon completion of the development) the Banks ( and they all have them) “Non Material changes” clause. This is a clause not in the purchase contract but in the loan agreement with your financier stating that if there is any change to your financial position between conditional finance and settlement the bank reserves the right to refuse to finance. This obviously could include such things as death, divorce and redundancy which could be totally outside your control. You will however, be asked to declare “unconditional” on the contract long before this. The only way to ensure that you are covered for this is to effect suitable insurance. No bank or financial institution will grant finance unconditionally 18 months out on the security of the investment alone ” Quality Conveyancing – Done Right! Sunset clauses and cooling off periods It is also important to note that in all development contracts there is a sunset clause which will allow the Vendor to rescind the contract . This is normally a specified date set a year or more in the future. It allows the Developer to have you commited to the purchase whilst allowing him an escape if he can not raise sufficient funding to construct or if the project for any reason becomes commercially unviable. You normally will receive your deposit back but may not necessarily recieve any interest on it . (see my comments on Deposits) The “cooling off” periods were established under the PAMDA Legislation to allow buyers to extract themselves from a contract should they suffer a bit of “buyers remorse. The period in general terms ends within 5 business days of signing the contract. Exercise of this clause may cost you financial penalties ( 0.25% of the contract price) and it is usually preferable to exersise any option you may have available under the finance clause or under your Solicitors due diligence clause if you have managed to have one inserted ( see previous comments). You need to realise that the end of any cooling off periods may be 6 months or more before the developer even commences construction. There is no additional cooling off period once the lot is registered. “ in all development contracts there is a sunset clause which will allow the Vendor to rescind the contract ” Quality Conveyancing – Done Right! Sunset clauses and cooling off periods cont… “ If you are considering purchasing a property off the plan, be sure to obtain advice from your Solicitor. ” Settlement will traditionally occur 14 days after the registration of the appropriate plans and CMS (Community Management Statement) with the Titles office. The actual date that the plan registers is always uncertain but when it does, the race is on to obtain all necessary searches and ensure that the property that you envisaged buying 18 months ago is what is finally being delivered to you. In Queensland the building industry is heavily regulated for the protection of consumers. This includes such things as the transfer of consumer warranties; Body corporate Insurances; registers of common assets; disclosure of management and service agreements; five year sinking fund budgets and forecasts and many other issues too involved to elucidate on in this broadsheet. The best advice that we can give you is … If you are considering purchasing a property off the plan, be sure to obtain advice from your Solicitor. Quality Conveyancing – Done Right! Why Choose Conveyancing Queensland? More than 30 years experience. Servicing individuals and businesses. Trusted advice in all areas of property law. Clients live locally, nationally and internationally Capable of handling complex cases and unique buying or selling scenarios. The LawStore Group of firms will take care of you and your conveyancing needs and will “do it right”. Quality Conveyancing – Done Right! The LawStore Group Incorporating Q Solicitors www.qsolicitors.com.au Conveyancing Queensland www.conveyancingqueensland.com.au Lang Hemming & Hall www.langhemming.com.au MGM Solicitors www.mgmsolicitors.com.au • Buying • Selling • Business Services • Personal Services www.conveyancingqueensland.com.au +61 7 3358 2399 Quality Conveyancing – Done Right!