With the property market running hot and the popularity of existing properties being sold at auction at an all-time high, buying a property off the plans can seem like a good option.
With offers that you will only pay a 10% deposit now and nothing more until the build is completed, these can look attractive. New builds are also subject to a 5-year bright line test, rather than a 10-year bright line test, meaning you can on-sell more quickly without being taxed even if it’s not your main home.
However, the terms of the contract you sign will impact how your purchase goes as it progresses – for these off the plans builds settlement may be some way in the future.
At a minimum, your contract should contain a general due diligence clause that allows you to confirm your finance and ensure the property will work for you.
There is also a lot of value in the inclusion of a solicitor’s approval clause. This means that your lawyer can check over the form of the contract and attempt to negotiate any changes that may be important for your situation – though bear in mind that there are limitations on the scope of these clauses and best practice would always be for your lawyer to review the contract before you sign it. There are often seemingly innocuous clauses that may cause you major issues down the line. An example would be a clause in relation to the size of the property. Consider the clause below:
If the size of the property varies by more than 3%, then the purchase price shall be amended proportionally.
A clause of this nature is fairly common and is generally a good clause for purchasers to have included in a contract as it gives them certainty that if the size of their property is not what they expect, then they will not pay the same price as originally agreed on.
However, consider the following hypothetical situation. You are purchasing a land and build package near the CBD for $750,000.00. The contract notes the land is 70m2. However, a few weeks before settlement, you are notified that because the land area will now be 77m2, you will be required to pay an additional 10% for the underlying land. The underlying land has been valued at $5,000.00 per square meter, and so you are now required to pay $35,000.00 more than you expected. To some purchasers this may be workable, but if you are financing this purchase with limited equity, the bank may not be willing to lend you any more money, and you may not have enough funds to complete settlement.
The key takeaway here is to ensure that your solicitor looks over your contract. This can save you a huge amount of stress further down the line, especially where you are buying part of a development which is still a long way from completion.
At Taylor Shaw our Property Team regularly negotiates changes to conditional agreements to better suit our clients, as there is no ‘one size fits all’ for what may be the most significant purchase of your life.
If you have any questions in relation to this article or other property matters, then please do not hesitate to get in touch with a member of our team.