by Meng Cheong

Death and taxes are the only two certainties in life. Buying off-the-plan is one way to avoid the latter – under certain circumstances, including residency and a price threshold, you only pay stamp duty based on the purchase price minus the developer’s cost of construction.

The main risk of buying off-the-plan is that construction hasn’t started – you can’t see what you’re buying. You’re relying on promises made by the developer, including that the property will be constructed according to the design blueprints, artist renderings and advertising material. Purchasers may also be influenced by representations made by the vendor and their agents.  It is therefore important to understand the potential risks before making an off-the-plan purchase. The main ones are outlined below.

Failure to Meet Expectations

While the advertising brochures may be spectacular, the final product could fall short of your expectations. In serious cases where the discrepancies between expectation and reality have caused the financial harm or loss to the purchaser, then the vendor and sales agent may be liable for misleading and deceptive conduct.

This requires you to prove that a false representation has been made; and that you relied on that representation when buying. To obtain compensation, you must prove that it was your reliance that caused you to suffer financial harm or loss, and that the person presenting the statement knew, or ought to have known, that it was false.

To determine who is liable for the misleading and deceptive representations, it is important to consider each case individually. Sometimes an agent isn’t liable for false statements if he/she was acting merely to carry information from the vendor to the purchaser, without endorsing or disputing its accuracy (Butcher v Lachlan Elder Realty Pty Ltd (2002) 55 NSWLR 558).

Development does not proceed

Another risk is that the developer cancels the project if it is no longer viable. While this typically results in a full refund of your deposit, it doesn’t compensate you for your time and expense.

Construction Delays

Delays mean you are unable to move into the property as planned and will be required to arrange temporary accommodation or continue renting. Alternatively, investors may be unable to rent the property according to their original schedule and forego valuable rental income.

Most of the off-the-plan contracts include a sunset clause. If the property is not completed by a certain time, the contract becomes voidable. You can elect to exit the contract and receive your deposit back.

Risk mitigation for off-the-plan buyers

Buying a property off the plan can be a good decision for those who are aware of the risks. Prior to entering a contract, a diligent and prudent purchaser should:

  • Evaluate the credibility of the developer – we recommend one with a good reputation and long history of completing projects as planned and on time.
  • Consider the impact of changes in local property markets and economic conditions on the value of the property.
  • Ensure that your financial circumstances will allow you to settle on the settlement date, particularly if you are relying heavily on a lender.
  • Obtain independent legal advice.
  • Understand the rights and obligations attached to community living (including owner’s corporation fees).

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.