‘Off the Plan’ purchases – Win win v Lose lose
The Queensland Government has recently introduced significant changes to the Land Sales Act 1984 (Qld) and the Body Corporate and Community Management Act 1997 (Qld) impacting on ‘off the plan’ purchases.
What is an off the plan purchase?
When you buy a property ‘off the plan’ a purchaser enters a contract to purchase property from a developer before the building of the property has commenced or been completed.
What is the financial risk when buying off the plan?
A purchaser takes a risk as to whether the value of the property will increase or decrease over the time between entering the contract and finalisation of construction. Financial institutions are not prepared to take this financial risk and often purchasers are left to commit to the contract without the guaranteed financial backing required for settlement.
What is the impact of the new changes?
The introduction of the changes permit developers up to 5 ½ years to complete construction and registration of the property, an increase by 2 years. The new changes also permit a developer to request a 20% deposit, which is double the previously prescribed limit.
These changes are welcomed by the developers as a win win for them, permitting them to enter contracts at an earlier time in the development stage, allowing them longer to complete construction and guarantees 20% of the purchase price in compensation in the event the purchaser defaults and cannot settle.
On the other hand for a purchaser the changes represent a lose lose, aggravating the already existing financial perils and potential losses a purchaser can encounter when looking for an investment property.
During the new 5 ½ years a person’s circumstances can change dramatically which can affect their ability to obtain finance and complete a contract. If a purchaser is unable to complete the purchase due to intervening circumstances or a drop in market values, the introduction of the 20% deposit means a purchaser can suffer a greater loss.
If you are considering entering an off the plan contract please contact our office, McLaughlins Lawyers. We are Gold Coast lawyers with a commercial law team who you can contact directly in order to discuss how the changes will affect you.