Not to be confused with an Option to Purchase, or even a One-Time Password, both being separate term with the same acronym, ‘OTP’.
Buying off-the-plan (“OTP”) property means you are effectively entering into a contract with the developer:
- before the property is built, or
- before there is development approval for the property, or
- without the commencement of construction, or
- without the developer having title registration for the land.
While buying property off the plan offer buyers the benefit of securing their desired real estate property at current market price, it presents a variety of unique considerations and risks compared to buying a completed property.
The crux of these complexities arises from the uncertainties that may occur during the development approval stage, or construction phase. Risks such as :
- construction delays,
- development approval delays,
- market price fluctuations,
- increase in costs for constructions,
- developer going into liquidation,
- unforeseen changes to the development.
Some risks are commercial in nature, and you would need to seek independent financial advice prior to entering into an off the plan contract.
Our team of expert property lawyers at HTW Legal Group outline and explain the various types of off-the-plan property development and legal considerations you should consider before your enter into an off the plan property purchase.
What Does Buying Property Off The Plan Mean?
While there are many variations to the definition of real estate in buying property off the plan, in simple terms – you are buying a property which cannot be transferred until certain tasks as complete, such as :
- Obtaining the relevant approval from the necessary government authority for the development
- Registration into seller’s name
- Subdivision of the property (if you are buying vacant land)
- Completion of construction
- Obtaining necessary certificates for the dwelling
- Obtaining an indefeasible title for the property
What Are the Benefits of Buying Off the Plan in Queensland?
1. Paying Today’s Price for Tomorrow’s Property
By entering into an off the plan contract, you are locking in the final price of the undeveloped property at the point of signing the sales contract.
Developers typically require certain pre-sale contract in order to obtaining funding for the construction of the development, developers generally tend to price the property competitively during off the plan stage to attract sales.
There is potential for capital growth on the off the plan property, especially in a Queensland market where property prices have experienced a significant increase after the COVID pandemic.
However, this advantage can turn into a double-edged sword in times of a declining market economy or when an influx of available property goes into the market, given that you have agreed to pay a price higher than the market value of the property at completion.
2. Brand New Property & Potential Customisation
If you get in early on a new development, you can select properties based on your personal preferences in terms of size or orientation of your property.
Since the property is unlikely constructed yet, you may also have the opportunity to decide on the style and finish of your property, rather than renovating the property.
However, uncertainties and changes can often occur during an off-the-plan development, and the final property can be different to what the buyer was originally promised.
It is therefore important to have your property lawyer carefully review the terms and conditions of the off the plan contract prior to signing and ensure that during the construction phase any documentations sent by the developer are reviewed carefully by your property lawyer.
3. Government Grants
If you’re buying your first home as owner-occupiers, you may eligible for the First Home Owner Grant (FHOG).
4. Government Concessions – Transfer (Stamp) Duty
In addition to the First Home Owner Grant, as owner-occupiers, you may be eligible for the First Home Owner Concession, paying lowered or no transfer (stamp) duty on your purchase.
Key Things to Consider Before Buying Off the Plan
1. Sales Contract Variation
The sale contracts used in off the plan property sales are prepared by the developer’s solicitors, and would include a contract and disclosure statement, that are specifically tailored for the development you are buying into.
These documents are generally more detailed than the standard Real Estate Institute Queensland (“REIQ”) contracts that are used for the usual property transaction and more favourable to the developer.
Most developers include variation clauses in the sales contracts allowing them the flexibility to make amendments, such as variation to the common area and exclusive use areas of the development.
There may also be developer termination clauses in the contract, meaning that even though the contract is signed, the developer may also terminate the contract without penalty.
2. Disclosure Statements
In Queensland, when selling off the plan developments, the developers are legally required to provide buyers a disclosure statement, and any failure to do so prior to entering into the contract gives rights to the buyers to rescind the contract.
A disclosure statement should contain critical information such as the identification particulars of the property, the orientation, the size, any restrictions on the use of the land or property, any fees associated with owning the property.
For off the plan vacant land contracts, the disclosure statement must provide, amongst other requirements, identification particulars of the block of land (‘the proposed lot’), the number of the proposed lot, the total area of the proposed lot and the proposed orientation of the lot (by referring to north).
3. Deposit & Finance Conditions
It is important to understand the finance condition, deposit and payment terms, which are included in the off the plan contract.
Finance approvals have terms, and approvals may expire, buyers must be warned that at settlement, they may need to apply for finance again since approvals are generally conditional on registration of the survey plan and title creation.
Off the plan contracts generally have the settlement period of 14 days from the developer providing written notice to the buyer calling for settlement.
If you are financing, you would be required to obtain valuation for the property and sign all loan documentations with your financier.
The timeframe is relatively tight, and buyers must act diligently with the finance broker/bank and property lawyers during this period.
4. Delay in Property Completion
During the COVID-19 pandemic, construction firms were hit with higher manpower and increased construction material cost leading to unforeseen delays in their construction.
The result of which were that off the plan property buyers who signed contracts prior to or during the COVID-19 pandemic experienced delays for the settlement and handover of their off the plan property.
When buying off the plan property, other than construction delay, buyers should necessarily expect that other factors such as weather, material shortages, labour issues, and council approvals may push move-in date back by months, sometimes years.
While delays may be considered as bad-case scenarios, there exists a worst-case scenario of property developer declaring bankruptcy before construction is completed.
5. Sunset Clause
Nearly all off the plan contracts would have a common term “sunset clause”.
Sunset clause typically specifies the timeframe which the developer is required to settle the property with the buyer, this may include obtain all necessary approvals from local government, obtain all certifications for the occupation of the property (“the approvals”) and complete the construction.
The clause is designed to protect buyers from uncertainty by giving them a defined timeframe for project completion.
Can I Sell My Off The Plan Property Purchased Before Settlement?
For the majority off the plan contracts, the answer is no.
However, you should check the terms and conditions in your individual off the plan contract. Some may allow for it to be resold subject to the seller’s consent.
You would need to consult your property lawyer for as it would need to be assessed case by case.
Legal Protection for Off The Plan Property Transactions
When buying a property off the plan in Queensland, caveat emptor (let the buyer beware) principle applies under the common law, which means that the responsibility to protect their own legal interest falls in the hands of the buyer.
At HTW Legal Group, our expert property lawyers have prior experience in representing both individual buyers and property developers in off the plan property contract negotiations.
📞 Contact HTW Legal Group today for a consultation.
