Residential buildings – buying off the plans
We all know it’s getting pretty tricky to buy a property these days. However, with a record number of building consents being issued, there are more properties on the market to buy “off the plans”. A great opportunity, but one that comes with risks.
Buying off the plans allows you to lock in a price for the property in a tumultuous market, all while giving yourself extra time to save your remaining deposit. When you “buy off the plans” you are usually buying directly from the developer or an agent. You’ll often see a show home or a glitzy digitalised version of the end product; and your agreement will usually contain a proposed plan of what the full development might look like, along with the floor plan and specifications.
But buyer beware! Because you are buying a product that you can’t yet see, it’s important to weigh up the possible risks. We’ve all heard horror stories of escalating prices, sunset clauses and poor construction. Here we outline a few key things to consider. Some things to look for:
- Type of property – is this a standalone property or will it be attached to another. What are the legal ownership rights, is it a unit title or freehold. Have the rules of the resident’s association or body corporate been prepared. What are the annual fees.
- Conditions – what conditions are in the agreement. For example, is it subject to the developer meeting a minimum number of sales before the development will proceed, or, obtaining a resource consent.
- Deposit – is this payable prior to satisfaction of any conditions. Once paid, will this be held in a solicitor’s trust account until settlement or can the developer access it?
- Timing – ask questions about how far the development has progressed and what the expected time frames are. Expect delays! Does the developer own the land yet, or is it still subject to contract. What stage are they at with the resource consent or building consent.
- Title interests – what interests (easements, encumbrances, land covenants etc) will be registered against the new title. Have drafts been prepared.
- Changes – what are the developers rights to change the design and layout of the property before settlement.
- Investigate the developer and/or builder – Google them and ask for examples of their previous work. Do they have a proven track record of completing developments.
- Finance – be aware that you might not be able to get finance approval until after you have committed to buy. Ensure you are comfortable with this position. Also, if buying an apartment, check if your bank has minimum deposit requirements or if the apartment area must be of a minimum size.
- Sunset date – is there an ability for either party to cancel the agreement if the title hasn’t issued by a certain date. Sunset date clauses can act in both parties’ favour to allow cancellation of an agreement for a development facing delays or not proceeding. However, recently, as property prices have risen some developers have used these to cancel agreements and then sell for a higher price.
Agreements for sale and purchase are legally binding and agreements to buy property off the plans can be complex. Always get your lawyer to check over the documents to save headaches later down the track. For further information, please contact Bridget Cameron.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.