Key Takeaways
- Off-the-plan means buying before construction - you pay deposit now, balance at completion
- Finance pre-approval is indicative only - final approval happens near settlement
- Valuation risk is significant - property may be worth less than purchase price at completion
- Stamp duty savings often available on land value only
- Sunset clauses protect both buyers and developers - know your rights
- Legal advice is essential before signing any off-the-plan contract
Buying off the plan can offer benefits including stamp duty savings, time to save, and purchasing in developments before public release. However, it also carries unique risks that require careful consideration and planning.
At Mortgage and Finance Advisory, we help clients understand and navigate off-the-plan purchases, including finance structuring, risk assessment, and settlement preparation.
What Is Buying Off the Plan?
Buying off the plan means purchasing a property before it is built, based on architectural plans, specifications, and artist impressions. You sign a contract and pay a deposit (typically 10%), with the balance due at settlement when construction completes - often 1 to 3 years later.
The Finance Challenge
The gap between contract signing and settlement creates a significant finance challenge. When you sign, you can get a pre-approval based on your current circumstances. However, this pre-approval is indicative only - it does not guarantee finance at settlement. By the time construction completes, your circumstances may have changed (income, debts, employment), lending policies may have tightened, and the property valuation may differ from your purchase price.
Valuation Risk
If the property values at less than your purchase price at settlement, you may need to fund the shortfall from savings. A property purchased for $600,000 that values at $550,000 requires an additional $50,000 from you.
Stamp Duty Benefits
One key advantage of off-the-plan purchases is potential stamp duty savings. In Victoria, you may pay stamp duty on the land value only (at contract date) rather than the completed property value. On a $700,000 apartment with $300,000 land value, this could save over $20,000 in stamp duty.
Understanding Sunset Clauses
Sunset clauses set a deadline by which construction must complete. If the developer misses this deadline, either party can terminate the contract and the deposit is returned. Recent Victorian legislation protects buyers from developers deliberately invoking sunset clauses to cancel contracts and resell at higher prices - developers now need VCAT approval to terminate.
Protecting Yourself
Before signing any off-the-plan contract, get independent legal advice, understand exactly what is included (fixtures, finishes, car spaces), check the developer's track record and financial stability, understand the sunset clause terms, and have your finance broker assess your position.
Our Advice: We recommend clients maintain a financial buffer and avoid making major financial changes between contract and settlement. We also monitor your position and alert you to any concerns well before settlement.
Frequently Asked Questions
Buying off the plan means purchasing a property before it is built, based on plans and artist impressions. You pay a deposit at contract signing and the balance at settlement when construction completes, typically 1-3 years later.
Key risks include valuation shortfall at settlement (property worth less than purchase price), lending policy changes affecting your approval, construction delays or defects, and developer insolvency.
Pre-approvals for off-the-plan are indicative only. Final approval happens closer to settlement when the lender can value the completed property. Your circumstances and lending policies may change in the interim.
A sunset clause sets a deadline by which construction must complete. If the developer misses it, either party can terminate the contract. Recent law changes in Victoria protect buyers from developers using sunset clauses to cancel and resell at higher prices.
Often yes. Off-the-plan purchases may allow you to pay stamp duty on the land value only rather than the finished property value, resulting in significant savings.
Considering an Off-the-Plan Purchase?
Get expert advice on finance strategy and risk management before you commit.
