Buying an off the plan apartment in Australia
The comprehensive guide to what you need to know
What is an off the plan apartment?
Off the plan apartments are apartments being sold during the planning and construction phase. Buyers are essentially purchasing the property based on the plans, designs, and specifications provided by the developer, without physically inspecting the completed property.
Benefits of an off the plan apartment
Buying an off the plan apartment can give you numerous benefits
- First in, best dressed
- The earlier you get in, the more choice apartments you have.
- Lock in the price
- You lock in the price at the market price today. If the market appreciates in this time frame, you don’t have to pay more.
- Save more with more time
- Your formal application for a mortgage happens closer to construction completion when the lender can conduct valuation assessments of the close to finished product. You can use this time to save.
- Concession / full savings on stamp duty when buying a new home: details on NSW government
- Government grants
- Take advantage of the NSW government’s First Home Owner’s Grant (FHOG)
- Off the plan apartments work on a first come, first served basis, the earlier you contact an off the plan apartment sales agent, the more choice of apartments you have available to choose from in the complex.
Risks in buying an off the plan apartment
- There is no history of the building. You won’t have a strata report full of details to tell you about the current conditions of the building or your specific unit. This means assessing the reputation of the developer and their other construction projects are paramount in understanding whether you will experience issues with defects.
- It can get delayed longer than the property developer’s estimated complete. Make sure you check your contract for the sunset date and any extensions they can make for further delays for move-in.
Buying an off the plan apartment – steps to take
Assess the reputation of the property developer
The reputation of your property developer and builder is the best way to minimise the risk of something going wrong in an off the plan apartment. Typically the name they register for the development is a throwaway subsidiary to protect their parent company (common practice and not a concern by itself), so make sure you check both.
How to start your research
- Check the developer/builder websites
- Check to see how many years they have been around for. You don’t want to be one of the first handful of projects they are doing. To be safe, aim for companies with a minimum of 10-15 years of establishment
- Check to see if they list past developments on their website and Google those property names to see if they have appeared in the news to see if you should have concerns
- Check to see if they have Google reviews and see if they have legitimate complaints. It is easiest by searching their name through Google maps to make sure it pops up.
- Check websites such as Urban.com.au to see if they have listed other developments they have constructed
- Google in the main / news section of Google and search for phrases such as:
- Developer/builder name
- Developer/builder name + defects
- Developer/builder name + Reddit (This is great to see if anyone has already have talked about them)
- Check to see if they have a parent company they operate under
- Check with the local council to determine that the developer has in fact received DA approval.
Off the plan apartment inspection checklist when reviewing the floorplan and units with the agent
- Lighting in each room (Aspect of apartment as well)
- Flooring (timber/carpet)
- Layout: Are the rooms arranged to maximise the use of space and minimise dead space?)
- Size
- Lighting
- Flooring
- Ceiling
- Windows
- Location
- Aircon/ceiling fans
- Strata/council/water
Customisation
The more expensive an apartment, the more likely you have included customisation options, but it never hurts to ask if you can customise anything:
- Colours
- Additional built-in
- Additional cupboards
- Bathroom tiles
- Kitchen tiles
- Carpet vs timber (and type)
- Appliances
- Finishes to rooms
- Additional powerpoint placements
Building facilities
- Gym
- Pool
- BBQ
- Courtyards
- Workspaces
Other
- Number of visitor parking spots
- Do you need to notify anyone / book to reserve a guest parking spot?
- Do you have a onsite/offsite building manager?
Useful tips when buying off the plan apartments
- You can’t apply for a formal loan until the construction is near completion, this is when the lender sends a property valuation assessor to determine the lender-assessed value of the property. This can be different to the price you actually paid for the property, so be prepared to financially make up the difference. The risk can be higher than purchasing a ready to move in apartment as a lot can change between the time you put down a deposit to secure your unit and the time of settlement of your property.
- Ask for the estimated completion time, but note that this is a very loose guide depending on the reputation of the developer. It is best to check with a solicitor to make sure you understand the specific terms of a sunset date within your sales contract.
- You may have to also pay your stamp duty within a 12 month period of exchanging contracts.
FAQs
Off the plan apartments are apartments being sold during the planning and construction phase. Buyers are purchasing the property based on the plans, designs, and specifications provided by the developer, without physically inspecting the completed property.
A typical deposit for buying off the plan is usually around 10% of the purchase price.
Developers may require a higher deposit amount, especially if the project is in high demand or if the construction timeline is longer than usual. Buyers should carefully review the contract and consult with a lawyer or conveyancer to ensure they understand the deposit requirements and their legal obligations.
It’s also important to note that some states and territories in Australia have statutory insurance schemes that protect buyers’ deposits in the event of the developer’s insolvency. For example, in New South Wales, the Home Building Compensation Fund provides cover for deposits up to $20,000 or 5% of the purchase price, whichever is the lesser amount. Buyers should check whether such schemes apply in their state or territory and the specific terms and conditions that apply.
Buying off the plan involves purchasing a property before it is completed or built. The process typically involves the following steps:
Research: The buyer researches the development, including the location, developer, builder, and the proposed design and features of the property.
Contract: The buyer signs a contract with the developer or builder. The contract will outline the terms of the sale, including the purchase price, deposit amount, payment schedule, completion date, and any special conditions.
Deposit: The buyer pays a deposit, which is typically around 10% of the purchase price. The deposit is held in a trust account until the property is completed.
Construction: The developer builds the property according to the plans and specifications provided.
Settlement: Once the property is completed, the buyer is notified and settlement occurs. The balance of the purchase price is paid, and the property is transferred to the buyer.
Move-in: The buyer takes possession of the property and can move in or rent it out.
If a developer goes bankrupt before completing a property in Australia, the outcome will depend on the specific circumstances and the type of insolvency that the developer is experiencing.
If the developer is placed in voluntary administration, they may be able to continue operating and completing the project. In this case, the buyer (you and your lawyer) may need to negotiate new terms with the developer, such as a new completion date or a reduced purchase price.
If the developer is declared bankrupt or goes into liquidation, the property may be sold to repay the developer’s creditors. In this case, the buyer may be able to claim their deposit back through the relevant state or territory’s statutory insurance scheme. In some cases, the buyer may also be able to pursue legal action against the developer to recover their deposit and any additional costs incurred.
The laws and regulations surrounding insolvency and property development can vary between states and territories in Australia. Buyers should seek legal advice and review their contract carefully to understand their rights and obligations in the event of a building developer’s insolvency.