Off-The-Plan: Debunked

Off-The-Plan: Debunked

Is the art of buying something that doesn’t even physically exist as scary as some make it out to be?

In short, no. Well it doesn’t have to be – the fear of buying off-the-plan is festered quite often in the media, especially as of late. But what should you really be looking out for?

Buying in a project can have it’s positives and it’s negatives, however there are many ways you can easily cut out the negatives, like employing proper ground work and research before making the leap.

So! What are these tips I hear you say? Thanks for asking, lets debunk the main points.

The Sunset Clause: Dirty Word.

Well, it doesn’t have to be at least. I’ve personally seen many buyers ask an agent or developer whether the property they are looking at, has a ‘Sunset Clause’. The answer is always yes. The Sunset Clause will rarely ever be deleted, and if it is, I’d turn around and run.

The Sunset Clause is effectively a protection for not just the developer, but for you as the purchaser. If the property or development is not completed (in most cases completed is the point the Occupational Certificate is issued), or separate titles are not created for the lots you have purchased, EITHER party may rescind the contract.

Now, this protects you, in the way that you may cut your losses and walk away if the entire development is going haywire. In most cases, you only hear about the bad cases. In reality, a developer will often seek to extend the Sunset Clause, as opposed to cutting everything off and rescinding the contract.

Luckily, in NSW, there is further protections available to the buyer with regards to the Sunset Clause. With these new laws, a Developer must seek consent from the purchaser if they wish to rescind the contract, and if it is not agreed, the developer must justify their reasoning and often apply to the NSW Supreme Court to action this. More protection for the buyer!

Having said that, it’s not a perfect world, so with Off-The-Plan properties especially, make sure your Solicitor or Conveyencer goes through the contract with a magnifying glass just to make sure, and if you want extra clarification, go through it with them and query everything that you may be worried about and seek those extra reassurances.

Developers: Dodgy

No. Simply put, not all of them are. There are many developers out there, that are not in the business of undercutting, doing dodgy work, and ripping people off. Having said that, you don’t want to be caught out buying with the one that is.

Do your research. You can avoid any pitfalls by checking everything carefully. Utilise the knowledge of your contacts, namely your broker, and your lawyer. They’ll be able to search, query and confirm any suspicious. DO NOT ask your friends, or your builder contacts, or tradespeople. A developer who may have offered a lower rate for their services 5 years ago may still have a grudge being harboured by the tradesman or builder. Seek advice from trusted sources – people you are paying in this circumstance. They have a burden to tell you the correct information.

If they don’t have a website, that’s a red flag. Why don’t they want to showcase their previous developments? Is there a reason?

Check out their recent developments, something within 5-7 years old. Then check out one that is up to 10 years old. After 7 years, most building insurances run out, so you’ll be able to see the difference, if there is much that went downhill after that period ran out. Don’t be overly picky. If there is a minor structural problem after 7 years, it’s more than likely a problem with the strata company and the sinking fund. Structural issues happen to everything, and are generally minor due to earth movement.

Research. How long has the company been around, if it’s not long, find out what the main stakeholders were doing beforehand. A new company isn’t necessarily a bad company, just different. Just find out what the stakeholders had done in the past, history, careers etc. You might find that one is a wholesale supplier of major building material, and one may be a builder, a commonplace scenario.

Look at who’s marketing the property. Major projects divisions will never ever let their name go near a bad development, or one that would inevitably bite them back. If the company or Estate Agency marketing the property is reputable, it’s a big tick. Companies like McGrath have such an immense image, they are least likely to associate with dodgy companies, especially if they are involved in their Projects Division.

If it’s a company like Colliers, CBRE, JLL or Savills, again, this is their bread and butter. They’d rarely ever be allowed to take something on that will topple their empires.

Developers or Agents can change the price I paid

With a good solicitor to make sure, never. In most high end developments by reputable or non-dodgy developers, they are unable to change the price on you after you’ve purchased. Proper Developments will have you exchange with 10% as you would a normal sale, and often have you physically exchange on the contract as per normal. Don’t fret though, imagine it like a standard sale with an exceptionally long settlement time.

The prices are fixed. When you visit the agent, you won’t compete with anyone over the price, just the stock. The price they show you on a sheet, unless there’s a scheduled price rise (there generally always will be), will not go up. And once you’ve exchanged, they cannot change the price on you.

There are immense benefits of this. You know how much you will pay, once you’ve pinpointed one of interest to you, and you can then take advantage of the capital growth from that point on-wards. In most cases, especially in Sydney as of late, you will benefit from capital growth, but don’t ride your luck. Do your research, see what sort of infrastructure is around, and seek assurances in your market research.

I need more tips!

Yes, I know, but you’ve just read a wall of text. Just step away from the computer for a bit, have a bit of a gander at RealEstate.com.au or Domain.com.au, and see what’s happening in your areas of interest. Research developers and agents. Get out there and employ your new knowledge.

I’ll have some more tips for you soon. I promise.

Photo Credit: Tim J Keegan (Flickr Creative Commons)

Author

Michael Turner is a Property Development and Analytics Specialist operating in Sydney's Growth Centres and corridors. He is a Director of YPI, along with several roles at property development firms and agencies. He can often be heard on various radio mediums talking about Football and Property. You can find him on Twitter @mturnerypi or email him directly at m.turner@youngpropertyinvestor.com

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