Buying an off the plan property is a huge leap of faith, make sure you do your homework to avoid making the mistake I made.
This subject is very near and dear to my heart as I personally lost lots money on an off the plan deal few years ago. With an existing property, what you see is what you get generally. However, when you buy an apartment off the plan, you are trusting that the developer will deliver exactly what was shown on the brochures. In my case the developer did not deliver and I ended up losing on huge capital gain.
Don’t get me wrong though buying off the plan can definitely work for you but you need to do your homework first. Here’s what you need to know:
1. Specify everything in the contract.
Learn as much about the development as you can and then make sure every detail is specified in the contract including fixtures and fittings. For example: specify not only what kind of appliances should be in the property, but what particular brand and model.
2. Make sure the developer is a renowned and credible one.
This is a very important one! I would recommend you to steer clear of no name brands – no matter how glossy their brochures are. This brings me to my horror story with Massland.
I put down $40,900 in 2012 and got $40,900 in 2016. After 4 years I had no property, no capital gain and not even interest on my money. Had I gone and invested that money into an existing property, my capital gain would have been roughly $120k by now. Ironically, I work in real estate, you’d think I’d be less susceptive to these things but turns out no. There was nothing Fair trading could do about it either.
Also, go and look at the developer’s existing developments. Talk to the residents, see if there’s any major defects they have to complain about.
3. Request your deposit to be placed in a Trust Account or a Term Deposit
The developer arena is relatively poorly regulated by Fair Trading and they are NOT required to place your 10% deposit into a trust account. This is a major risk and you need make sure your deposit is safe in a trust account or a term deposit. I would recommend a term deposit since your money could earn interest there. Better still, give them a bank guarantee. You will thank me later for this.
4. Keep a copy of the exchanged contract – at the least the front page of it
This is a personal lesson I learned the hard way and it cost me a lot of money. I couldn’t prove the authorities that I had signed a contract with Massland because I didn’t have a copy of the contract.
5. Last but not least, make sure you ask your solicitor to duly run through the contract to avoid dodgy clauses in it.
As mentioned previously, off the plan properties sales are poorly regulated by Fair Trading. You would want to avoid any clauses in your contract that states such as “The developer/vendor will not be responsible should the final property differ from what was being advertised” etc. You would think who would insert such clauses but trust me, some developers will get away with anything if you let them.
All in all, hopefully this gave you a little insight into what to do when buying an off the plan property. Remember, someone has already paid the price to learn these lessons so don’t repeat it.