What Is an Off-the-Plan Property and Should I Buy One?
Buying off the plan means purchasing a property that has not yet been built — you are buying from architectural drawings, floor plans and a developer’s prospectus. Settlement does not occur until the building is complete, which may be 12 to 36 months away. Off-the-plan purchases offer some advantages but also carry specific risks that buyers and investors must understand before committing.
How Does Off-the-Plan Buying Work?
You sign a contract of sale and pay a deposit (typically 10%) when you agree to purchase. The balance is paid at settlement when the building is complete. During the construction period you do not own the property — you hold a contractual right to purchase. If the developer goes insolvent before completion, your deposit may be at risk (though most states require deposits to be held in trust).
Benefits of Buying Off the Plan
- Stamp duty is calculated on the contract price, not the completed value — saving buyers money in some states
- New properties attract higher depreciation deductions for investors (Division 40 and Division 43)
- First home buyers may receive the First Home Owner Grant on new builds
- You lock in today’s price in a rising market — if values increase during construction, you gain equity before settlement
- New builds come with statutory warranties from the builder
Risks of Buying Off the Plan
| Risk | Explanation |
|---|---|
| Valuation shortfall | If completed value is lower than purchase price, your lender may not lend the full amount — you must make up the difference in cash |
| Sunset clause | Developer can rescind the contract if construction is not completed by a specified date — can be used opportunistically in rising markets |
| Developer insolvency | If the developer goes under during construction, project may not complete |
| Quality risk | The finished product may differ from the display suite or plans |
| Market change risk | If the market falls during the 12-36 month construction period, you may pay above current market value |
| Finance risk | Your financial circumstances or lending rules may change between exchange and settlement |
What Is a Sunset Clause and How Does It Affect Buyers?
A sunset clause sets a deadline by which the developer must complete the project. If they do not, both parties have the right to rescind the contract and the deposit is returned. However, developers have been known to intentionally delay completion past the sunset date in a rising market so they can rescind contracts and resell at higher prices. Victoria and NSW have introduced laws to restrict developer-initiated sunset clause rescissions — always have a property solicitor review the sunset clause terms before you sign.
GeeVee Verdict: Proceed With Caution and Expert Advice
Off-the-plan can work well for investors targeting new-build depreciation benefits and for first home buyers accessing the FHOG on a new build. It is higher risk than buying established property because of valuation shortfalls, sunset clause risks and developer insolvency. Always use a property solicitor (not just a conveyancer) for off-the-plan purchases, get a valuation at exchange if possible, and research the developer’s track record thoroughly before committing.
Frequently Asked Questions
Can I get a building inspection on an off-the-plan purchase?
Not during construction. However, you have the right to a pre-settlement inspection before settlement to check the build quality and identify defects. Engage an independent building inspector for this inspection — do not rely on the developer’s certifications alone.
What happens if my finance does not come through at settlement?
If you cannot settle because your finance is refused, you are typically in default. The vendor can rescind the contract, retain your deposit and sue you for additional losses. This is why it is critical to reassess your borrowing capacity with a mortgage broker as construction nears completion, not just at exchange.
Is stamp duty calculated on the purchase price or the completed value?
In most states, stamp duty on off-the-plan purchases is calculated on the contract price (what you agreed to pay at exchange), not the completed value at settlement. Concessions for off-the-plan purchases vary by state — check with your conveyancer for current rules in your state.
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