Buying Off the Plan in Victoria: What You Need to Know Before You Sign

Buying Property

2 Sept

Buying property off the plan means signing a Contract of Sale before the property has been built or, in some cases, before the plan of subdivision has been registered. This can provide an opportunity to secure a new apartment, townhouse or house-and-land property well before it is completed.

However, an off-the-plan purchase is different from buying an established property. Settlement may be months or even years away, the finished property may differ from what you expected and your financial circumstances or the property’s value may change during that time. It is therefore particularly important to have the Contract reviewed and understand the risks before you sign.

What Are You Actually Buying?

When you buy off the plan, you are purchasing a property based on documents rather than inspecting a completed home. These documents may include a proposed plan of subdivision, floor plans, specifications, schedules of finishes and owners corporation information.

It is important to check exactly what forms part of the Contract. Particular attention should be given to the size and location of the lot, balconies, car spaces, storage areas, common property, easements and the proposed lot entitlements and liabilities.

Artist impressions, display suites and promotional brochures can help you visualise the finished development, but they may not form part of the Contract. If a particular feature, appliance or finish is important to you it should be clearly included in the contractual documents.

The Contract May Allow Changes

Off-the-plan Contracts commonly give the developer some ability to alter the plans, specifications, finishes or common areas during construction. This may be necessary to satisfy council, building or servicing requirements but the clauses can sometimes provide the developer with broad discretion.

Victorian law provides certain protections where the plan of subdivision is amended. Depending on the nature of the change and its effect on the property a purchaser may have a right to end the Contract. However, strict time limits apply, so any notice of a proposed change should be reviewed promptly.

Completion and the Sunset Date

The proposed completion date is generally an estimate rather than a guaranteed settlement date. Delays can occur because of planning approvals, construction issues, service connections, weather or registration of the plan of subdivision.

The Contract will usually contain a sunset date. This is the final date by which a particular event—usually registration of the plan—must occur. It should not be treated as the expected completion date.

If the plan is not registered by the applicable sunset date the purchaser may have a right to end the Contract and recover the deposit. A developer cannot generally use a residential off-the-plan sunset clause to end the Contract without the purchaser’s written consent or an order from the Supreme Court of Victoria.

Your Deposit

The deposit for an off-the-plan purchase must not exceed 10% of the purchase price and the amount may be negotiated. The deposit is generally paid to the vendor’s estate agent, conveyancer or solicitor and held in a trust account.

Although the deposit may be held for a considerable period the purchaser remains legally committed to completing the purchase unless the Contract or legislation provides a right to end it.

Finance and Valuation Risks

One of the most significant risks is the lengthy period between signing and settlement. A loan approval obtained when the Contract is signed will not usually remain valid until the development is completed.

Your lender will normally arrange a valuation closer to settlement. If the property is valued at less than the Contract price the lender may reduce the amount it is prepared to lend. You may then need to contribute additional funds to complete the purchase.

Changes to your employment, income, expenses, borrowing capacity or lending policies may also affect your ability to obtain finance. Most off-the-plan Contracts are not subject to finance, meaning difficulty obtaining a loan closer to settlement may not allow you to end the Contract.

Settlement Notice Can Be Short

Once construction is complete and the plan has been registered the Contract will usually require settlement within a relatively short period. You may receive only limited notice of the final settlement date.

It is important to remain in contact with your lender and conveyancer throughout the development and to have your finance reassessed well before completion is expected.

Stamp Duty and Available Concessions

An off-the-plan duty concession may reduce the amount of land transfer duty payable by allowing eligible construction costs incurred after the Contract date to be deducted from the property’s dutiable value.

A temporary concession currently applies to eligible apartments, units and townhouses in strata subdivisions with common property where the Contract is entered into before 21 April 2027. It is available to a broader range of purchasers, including investors, companies and trusts, and is not subject to a property-value threshold.

The concession does not apply to every off-the-plan purchase. Eligibility depends on factors including the type of development, the Contract date and how much construction has already been completed. Duty concessions and eligibility requirements can also change, so the position should be confirmed for the particular transaction.

Owners Corporation Considerations

When the development includes common property an owners corporation will usually be created when the plan of subdivision is registered. As a lot owner you will be required to contribute to the owners corporation’s fees, insurance, maintenance and other expenses.

The Contract may include proposed budgets, rules, lot liabilities and details of agreements intended to bind the owners corporation. These should be reviewed carefully, particularly where the development includes lifts, shared facilities, embedded utility networks, building management agreements or other services that may increase ongoing costs.

Final Inspection and Defects

Before settlement the purchaser is generally entitled to inspect the completed property. The inspection is an opportunity to check that the property has been completed in accordance with the Contract and to identify defects or unfinished work.

The Contract may set out a particular procedure for reporting and rectifying defects. It may also provide that minor defects do not allow settlement to be delayed. Any concerns should therefore be recorded clearly and raised as soon as possible.

Cooling-Off Rights

A cooling-off period may apply to an off-the-plan purchase made by private sale. However, there are exceptions, strict time limits and a financial cost for ending a Contract under the cooling-off provisions.

You should not sign an off-the-plan Contract on the assumption that it can easily be cancelled later. The safer approach is to obtain advice and have the Contract reviewed before signing.

Why a Contract Review Is Particularly Important

Off-the-plan Contracts are often lengthy and heavily tailored to the particular development. They may contain special conditions dealing with construction changes, settlement notice, finance, defects, owners corporation arrangements, nomination, resale restrictions and the developer’s rights if the project changes.

Having the Contract reviewed before signing allows you to understand what you are agreeing to, identify unusual or particularly onerous conditions and ask questions while there may still be an opportunity to negotiate.