Buying Off the Plan in Australia: Risks and What to Know

🏢 What does buying off the plan mean?🔗

Buying off the plan means you agree to purchase a property, typically an apartment, unit or townhouse, before it's been built or while it's under construction. You're buying from architectural drawings, a disclosure statement and usually a display suite. You pay a deposit, typically 10% of the contract price, at exchange, and the balance at settlement, once construction is complete and the plan is registered. That gap can be one to three years, sometimes longer.

It's distinct from buying an established home, where you inspect the actual property and settle within weeks, and from building your own home via a construction loan, where you own the land and engage the builder directly with progressive drawdown. Off the plan sits between those two, you're buying from a developer who handles construction, with less visibility or control.

If you're selling an existing property to fund the purchase, timing can get complicated, our bridging loans explained guide covers that scenario.

🤔 Why do people buy off the plan?🔗

• Lock in today's price. Sign at today's price, and if the market rises during construction, you could settle into a property worth more than you paid.
• Stamp duty concessions. Most states offer some off-the-plan concession, particularly for owner-occupiers and first home buyers, though it varies significantly by state, see our stamp duty guide for how it's calculated.
• First pick of the development. Choose your floor, aspect and floor plan before anyone else, with some ability to customise finishes depending on the developer and timing.
• Time to save more. The balance isn't due until settlement, giving you time to keep saving, which can help avoid LMI or reduce how much you need to borrow, see our how much deposit you need guide for that interaction.

If you're buying off the plan as an investment property rather than to live in, it's worth reading up on property depreciation schedules too, a brand-new property gives you the strongest depreciation position available.

⚠️ The risks, covered honestly🔗

1. Market risk and valuation shortfall. You lock in the price today, but the bank values the property at settlement, not at contract time. If the market has softened, the valuation can come in below the contract price, and the bank only lends against the lower figure. Example: contract price $650,000, bank values it at $590,000 at settlement, the bank lends against $590,000, and you need to find the $60,000 difference from savings on top of your original deposit. This valuation gap isn't hypothetical, it happened widely during the apartment oversupply in Brisbane and Melbourne between 2016 and 2019. If you can't cover it, you may not be able to settle, which is a breach of contract.

2. Sunset clause risk. Every off-the-plan contract includes a sunset clause, a deadline by which the building must be completed. If it's missed, either party can rescind. Between 2016 and 2018, some developers in NSW and Victoria let projects drag past the sunset date then rescinded contracts and resold at higher prices in a rising market, a documented, real abuse. Both states reformed the law:

• NSW: the Conveyancing Amendment (Sunset Clauses) Act 2015, commenced 2 November 2015, requires developers to get the buyer's written consent or a NSW Supreme Court order before rescinding. Buyers retain the right to rescind without court approval.
• Victoria: the Sale of Land Amendment Act 2018, commenced 23 August 2018, introduced similar protections, developers need written consent or a Supreme Court order, at least 28 days written notice, and the court must find rescission "just and equitable." It was applied retrospectively.

The risk is reduced, but not zero. Read your specific contract carefully, and get your solicitor to explain every exit right the developer has.

3. The finished product may not match the display suite. Display suites are marketing tools. What you're legally entitled to is the schedule of finishes attached to the contract, not the display suite. Layout can change during construction, and views can be blocked by subsequent developments. NSW law requires developers to notify buyers of changes to "material particulars" (changes adversely affecting use or enjoyment) and gives you 14 days from notification to rescind or claim compensation, capped at 2% of the purchase price. Get your solicitor to review the schedule of finishes before signing.

4. Developer or builder insolvency. Construction takes years, and developers or builders can run into financial trouble, especially with rising interest rates and construction cost blowouts. Deposit protection helps here, in NSW the deposit must be held in a trust or controlled money account, and can't be released to the developer before settlement, protecting it from creditors if the developer becomes insolvent. Victoria has similar protections. But deposit protection doesn't mean the project continues, if the developer collapses, the project may stall or be abandoned. Our construction loans guide covers this same builder insolvency risk from the owner-builder perspective, it applies here too from the buyer's side, just with less control or visibility.

On building defects, in NSW the Home Building Compensation scheme covers residential buildings up to 3 storeys. For apartment towers over 3 storeys, most new apartment developments, that scheme doesn't apply, instead the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 gives the NSW Building Commission powers to investigate serious defects for up to 10 years after completion.

5. Finance approval at settlement. Pre-approval isn't a guarantee, it typically expires after 3-6 months. If settlement is 2-3 years away, pre-approval needs refreshing multiple times, and circumstances can change, a job change, an income drop, other debt, or tightened lending conditions. If finance falls through at settlement, you're in breach of contract, losing your deposit and potentially facing further legal action.

📄 What to check in the contract🔗

🎯 The essential: Get your own solicitor to review the contract before signing, not the developer's recommended solicitor.

• The sunset clause, its date, what triggers it, notice required, and any other exit rights.
• The disclosure statement and plan of subdivision, the draft plan by a registered surveyor, the proposed schedule of finishes, and draft by-laws.
• The schedule of finishes, what's actually included versus optional upgrades.
• The cooling-off period, NSW gives 10 business days with a cost to exit of 0.25% of the purchase price, Victoria gives 3 clear business days with a cost of the greater of $100 or 0.2% of the purchase price, this varies by state, confirm with your solicitor.
• The material particulars clause, your right to rescind or claim compensation within 14 days of notification.
• What's actually included in the price, car park, storage cage, appliances, get it confirmed in writing.

✅ Due diligence checklist🔗

• Research the developer's track record on previous projects.
• Get independent legal advice from your own solicitor.
• Understand your finance approval timeline relative to the expected settlement date, and factor in pre-approval expiry and refreshing.
• Get a firm completion date in writing, and add a 6-12 month buffer.
• Ask whether you can visit the site during construction.
• Check strata fees, management contracts and by-laws for exclusive-use arrangements or embedded network contracts.
• Confirm Home Building Compensation cover or the equivalent, in NSW, proof of cover should be attached to the contract if construction has started, or provided within 14 days of it commencing.

🚫 3 common misconceptions🔗

"The display suite is what I'm buying." Not true, the schedule of finishes in the contract is what you're legally entitled to, premium finishes shown in the display suite may only be upgrade options.

"I can walk away if I change my mind." Only during the cooling-off period, and it costs you. After that you're legally bound, walking away means losing your deposit and potential further legal action.

"It'll be ready when they say it will." Construction delays are extremely common, factor in 6-12 months beyond the advertised completion date as a realistic buffer.

❓ Frequently asked questions🔗