The Number 1 Must Have Cheat Sheet On Off The Plan Research

The Number 1 Must Have Cheat Sheet On Off The Plan Research

Always wanted to know if buying an off the plan property was the right investment decision for you?

Don’t want to have to think about the amount of research that would be involved in making this decision.

Well, keep reading as we bring to you our insider cheat sheet on researching if off the plan is for you.

The benefits show that buying off the plan can be a strategy that works for many investors. Naturally, you have to do your proper research to ensure that the numbers work for you, including finance, return, growth potential, gearing, depreciation benefits and so on. Also, the complex nature of an off the plan purchase means you should conduct a range of other checks to make sure the investment runs as smoothly as you wish.

Check 1: Contract

Buying off the plan involves signing an off the plan contract of sale, which is drafted and tailored entirely differently to a standard contract.

According to many of our property law experts, one essential piece of advice is that before signing, you seek legal advice from a contract and property law professional. It is critical to check that the following factors are included in your contract:

Cooling off period if you change your mind: A cooling off period of between three and five days applies to your contract in most states. That means you can change your mind about purchasing the property during this time. However, if you decide to withdraw during this period, you may be charged with a termination penalty by the developer (0.25% of purchase price). Once this period ends, you are legally bound to buy the property.

Adequate plan disclosure: In an off the plan contract you are provided with plans and specifications of what the developer intends to build and construct as the finished product.

Usually, you will be given proposed plans yet to be approved by the local council of the entire project.

Also to proposed floor plans of the particular property, you have chosen, plus a schedule of finishes for the property (sometimes identifying an appropriate standard the developer has decided to use).

That is usually done before signing the contract of sale and discussed with the agent.

It is crucial you read and understand these plans before signing the contract to make sure you are satisfied with the level of disclosure the developer has provided to you and the detail and standard of the finishes.

In the contract of sale, developers almost always retain the right to alter these plans if required to complete the project.

Deposit: Up to a maximum of 10% of the purchase price is payable and usually held in a legislated trust account and invested until settlement.

Your contract should be checked to see who ends up with the interest earned on the investment at settlement, that is, the seller or buyer or both.

Sometimes customers are entitled to share in the interest earned.

Inclusions and warranties: The contract usually provides that the property will be constructed by the finishes and materials described in the contract.

It usually also provides the developer with the sole right to alter the finishes and materials in certain circumstances, provided the alternatives are of no less quality.

You should know that from start to finish, the developer is given a lot of flexibility in how the project is to be completed. The developer can make changes, provided they will not materially prejudice you as the buyer. If the changes are prejudicial, you want a contract that allows you the right to withdraw and obtain your deposit back. Sometimes, contracts enable you to customise the design (within the structural constraints of the building) to suit your individual needs. You can also select from a range of various fittings, fixtures, appliances, interior colour schemes and latest designer finishes.

Review inclusions and warranties in the contract to ensure you are protected from prejudicial changes and to see whether you can make your custom changes.

Defects: Normally, off the plan contracts, provide that the developer is to remedy any defects identified by you as the buyer before you settle on your purchase.

Before settling, as the buyer, you are given a right to pre-inspect the property and identify any defects to the developer.

Stamp Duty: Stamp duty must be paid on all purchase contracts. There are particular time periods involved and certain concessions and exemptions available to buyers of residential property. There are certain conditions that must be met to gain these exemptions or concessions. You need to obtain appropriate legal advice early as to your stamp duty liabilities in the contract.

Completion: The contract will usually offer buyers with an estimated time of when the developer intends to complete the project. The developer is provided with the flexibility to extend or alter these time frames while to take all reasonable steps to carry out the project as quickly as possible. If the developer cannot complete the project within this period, then both the developer and the buyer can terminate the contract. In those circumstances, the deposit is refunded to the customer. Again, legal advice should be obtained before signing the contract to ensure the buyer’s rights are adequately protected.

Check 2: Builder/developer

Before entering into a contract with a developer, it’s important to perform a background check. Start by visiting the company’s website. You should be able to access information relating to the past and present projects, as well as business numbers and contact details. It should also be clear who the directors of the company are.

Then, utilise online forums to find out whether other investors have had positive or negative experiences with the same developer in the past.

Once satisfied, ask for the licence number of the builders used for the construction of the property. You can then do a licence check on any of the state government web sites, to obtain information such as:

-Details about the licensee, including address, date of birth and the work he or she can do

-The date of issue and expiry of the license

-Conditions endorsed on the license

-Names of partners in a partnership or directors of a corporation

-The results of any disciplinary determinations and prosecutions

-The number of insurance claims paid in respect of work done by the holder

-Details of penalty notices issued to the holder

-Any cancellations or suspensions of the license

If the search turns up any concerning results, you may want to reconsider entering into a contract with the developer. A legal professional will also be able to advise you of other available checks you can carry out.

If you pay over the odds, you may be waiting for others to fulfil the requirements of the developer to start and could be sitting a while. An 18-month sunset clause is standard. Be cautious of longer dates.

Check 3: Home warranty insurance

It is the developer’s legal responsibility to provide home warranty insurance cover before entering into a contract for the sale of the off the plan property, provided the deal is for more than $20,000. The insurance covers the owner of the property for loss or damage resulting from non-completion of work, loss of deposit, or breach of statutory warranty.

Residential buildings of more than three storeys in height are exempt from home warranty insurance cover.

Construction of a multi-unit residential building of fewer than three storeys (not including car park) requires the developer to attach a home warranty insurance certificate to the contract for sale.

A certificate of home warranty insurance should be original, issued by the insurer. It should feature the property’s address, the name of the homeowner, the name of the developer, the name of the insurer and the total sum of the contract. You should contact the insurer directly if unsure that the insurance certificate is valid.

Check 4: Financing the purchase

It can be tricky to have finance approved for an off the plan purchase and many investors end up losing their deposit after being unable to complete the deal. Some lenders are reluctant because properties may be sold for more than they are worth, or in an uncertain market, their values may decrease between the signing of the contract and the property’s completion.

Some lenders protect themselves from possible loss by capping such loans at 80% LVR; while others will require later reviews of any pre-approvals, they issue at the time you sign the contract.

Talk to Awesome Lending Solutions for more advice around the best way to structure your finance.

Check 5: The property and its suburb

Choose wisely

For most of the plan developments, it’s a case of first in, best dressed. Penthouse apartments and others with the best views are often snapped up first and may go for more than the other properties on the development. It’s a good idea to go in knowing what you want from your apartment. Questions to consider include:

-Is it facing towards the nicest aspect?

-Is it removed from noise sources such as busy roads or workshops?

-Is its car space conveniently located?

-Is it as high or low in the building as you would like?

The right choice of the apartment can make your purchase worth more than others in the same building while costing the same amount. This maximises its potential for capital growth and rental yields.

Check 6: Prime position

Naturally, there is no point picking the nicest apartment if it’s in a suburb that is likely to stagnate. Your research on the area that the development is in should be the same as if you were buying a property anywhere. It is important to remember the following:

-An apartment in the development may seem cheap, but it may be over-valued compared to other properties in the suburb

-You may have been promised a high rental yield, but this won’t last if tenants find other properties with less rent

-The suburb itself should have regular growth drivers; such as good amenities, infrastructure, a favourable supply and demand ratio and be close to public transport.

Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help.

Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Contact us on 1300 761 988 or info@awesomelendingsolutions.com.au

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