It’s 2021 and this might just be the very year for many people entering the real estate scene to hunt for their dream home.
After all, we know that in the midst of the pandemic, banks are more keen to lend than ever with the Reserve Bank of Australia setting the official cash rate at 0.10%.
We’ve seen technology catching up with the property market in the form of online auctions and 3D look arounds.
All these factors may very lead to one thing – buying a new house.
When homebuyers are planning to buy a house, there are plenty of options available on the market. Some are pre-built and those that are yet to be built, in short, off-the-plan properties. So, is buying off the plan still relevant in 2021? If it is, what are the possible protective factors a purchaser can receive?
To answer that question, we must look into what buying off the plan means and what it entails.
What buying off the plan is all about
As it sounds, buying off the plan means that you’re purchasing a property that has yet been constructed. Off the plan properties are usually more affordable and flexible when compared to an existing property.
Since it has yet to be built, potential homeowners and investors are able to modify specific builds or materials.
Knowing that, the only visual representation buyers have at the time of purchase is usually the artist renders.
Hence, there are strict safeguards in place to protect the buyers because anything can happen before the completion of the building.
What are some of the safeguards for off the plan homes?
1. Home Building Compensation Scheme (HBCS)
One of such safeguards would be the Home Building Compensation Scheme(HBCS). This scheme states that residential building works valued over $20,000 must obtain coverage.
This would help to protect the buyer against
- Breach of statutory warranties relating to the work
- Non-completion of work
HBCS helps you, the buyer, by compensating for losses if there is defective or incomplete work. The scheme also covers you in instances where builders/developers become insolvent, dies, or has a suspended license.
To enjoy all these privileges, it would be ideal to apply for the HBC coverage before building commences. The most important point to keep in mind would be to attach proof of coverage to the contract of sale.
2. Notification of changes and statutory remedies
Another safeguard in place would be the notification of changes and statutory remedies. Changes frequently appear between sale and development, resulting in a final product being different from what was promised.
In fact, it is now compulsory for all vendors to notify purchasers of changes since 1 December 2019.
This notification of changes and statutory remedies hope to change that by making it compulsory for vendors to notify purchasers of the changes that were made in development.
For example, if the developer promised individual parking lots as part of the contract, but made the parking lots into a merged common property instead of the promised private lots upon completion, the purchaser will be able to seek out actions.
Under this statutory, purchasers are able to seek out the following remedies
1. Pull out of contract and get the deposit back
2. Settle with the purchase and claim compensation for the change
Furthermore, purchasers are required to be given a copy of the registered plan at least 21 days before signing the settlement contract.
3. Handling deposits
When buying the property, deposits and instalments monies are now held by an external stakeholder instead of the developer themselves. In this case, the real estate agent will be the one securing the monies in a trust account.
This arrangement lasts throughout the contract period, meaning that the money would not be released before settlement.
This arrangement of handling deposits protects you, the purchaser in an event of the developer’s insolvency.
4. Contract disclosures
When it comes to contract disclosures, the latest implementation is the Disclosure Statement document. In this document, key information such as sunset clauses and conditional events will be explicitly listed.
Apart from those, it would also include draft documents like floor plans, community plans, and scheduling of construction.
This will allow you to have a clearer understanding of what you’re potentially buying into as you’ll know the overall direction of the development.
As with property contracts, it comes with a sunset clause. The Sunset clause is a condition part of a buying contract that allows either you, the purchaser, or the developer to terminate the contract under certain conditions.
In the recent change, the conditions to terminate the contract occurs either when- the plan of subdivision has not been registered by the specified date (being the sunset date) or- an occupancy permit has not been issued by the sunset date.
This change was brought about by a number of cases in NSW where developers were terminating contracts as a result of an increased property valuation.
This termination allowed them to list the property out in the market for sale, making them a bigger profit margin.
Now, the NSW legislation requires the vendor to either obtain the purchaser’s consent or an order from the Supreme Court before the vendor can terminate an “off the plan” contract of sale under a sunset clause.
If a developer cannot obtain the consent of the purchaser, they will have to apply for, and obtain, an order from the Supreme Court allowing the developer to terminate.
Overall, this change in the sunset clause is to prevent dodgy developers from re-selling your property.
5. Extended cooling off period
The last change on the list to understand would be the extension of cooling off period from 5 days to 10 days.
The cooling off period is a period of 10 days upon signing a sale contract for off the plan buyers to have the option of forfeiting the contract. Upon pulling out of the contract, purchasers will be required to pay 0.25% of the purchase price.
This extended cooling off period will allow for a longer period of time to consider your purchase even when the contract has already been signed.
We know that buying properties off the plan comes with its own set of risks since you, the buyer, are unable to see a physical product till completion.
Hence, we hoped the above pointers allowed you to have a better understanding of the protections set in place for you, the buyers to make a sound decision when purchasing your off the home property.