What Is An ‘Off The Plan’ Property? (Part One)
‘Off the Plan’ property is commonly misunderstood by purchasers.
We take a look at what makes ‘Off the Plan’ different from your traditional purchase by answering some of our client’s recent questions.
WHY IS IT CALLED ‘OFF THE PLAN’? AREN’T ALL PROPERTIES OFF A PLAN?
This was one of the best questions I’ve ever been asked! Yes you are spot on, I am sure that almost every single property built in Victoria uses some kind of a plan to guide to construction!
The big difference is how you are buying the property…you are buying it ‘looking at the plan’ of what they are going to build, rather than inspecting the final product which has already been built.
To go a little further, the Vendor Statement for an ‘Off The Plan’ property will be ‘proposed’ rather than ‘registered’ and your individual property won’t have been individually titled yet.
When the one large ‘parent’ title which is usually a large piece of land (think a huge undeveloped block) has been subdivided into a couple, tens or hundreds of individual lots then settlement is almost ready to be called. This occurs at the end of the construction process.
IS THIS A COMMON WAY TO BUY A PROPERTY?
Thousands of properties are sold ‘Off the Plan’ in Victoria each year. In fact the majority of large scale developments in the city will sell their stock of apartments before construction has even started!
From a builder’s perspective they need to show that their is security in their development before their lender will give them money to commence construction. The best way to do that is to sell them before building has even started.
This provides the lender with surety that when the building has been completed there are already purchasers ready to pay their money and move in.
WHY CAN’T THEY TELL ME WHEN THEY PROPERTY IS GOING TO SETTLE?
A good builder/developer will be able to give you a strong indication of when the property will be finished and ready to settle and move in. Remember that large scale developments are complicated operations with many moving parts.
Each part of the construction process will be allocated a period of time to be completed and when all these are added together and a buffer of extra days to account for weather, public holidays and delays they will be able to give you an estimate for settlement.
Usually it will sound something like ‘we expect this property to be finished in March 2020’. They won’t give you a precise date or dates but rather a general timeframe to help you get ready.
WHERE DOES MY DEPOSIT GO DURING CONSTRUCTION?
One of the biggest concerns is where does your deposit go during the settlement period. Deposits are deposited into the trust account of the vendor and they usually are not allowed to be released early. It is important that the purchaser has the confidence that their money is safe during construction and that if for some reason the building isn’t finished, they will be able to get their deposit back in the future.
For Part Two of our commonly asked questions about ‘off the plan’ properties click here.
If you’re thinking about purchasing ‘off the plan’ then click here as our lawyers take you through what happened when a client couldn’t get finance to settle the property.