Supply chain disruptions and rising material costs have sent a plethora of building companies bust – so is buying off the plan still safe?

According to Compare the Market Property Expert Andrew Winter, off the plan investments will always have a level of risk involved, but there are ways to minimise it.

This comes as the Queensland government plans to deliver almost 900,000 new homes to the southeast corner by 2046, and the New South Wales government has forecasted around 138,550 new homes are to be built in Greater Sydney over the next five years (2022-23 to 2026-27).

Meanwhile, the Victorian government has committed to building 2.24 million new homes by 2051.“Right now there aren’t enough homes to keep up with growing populations in our capital cities – building more is the only answer,” Mr Winter said.

“Buying off the plan can be a fantastic and accessible way to get into the property market, and many first-time buyers may be able to qualify for grants and stamp duty concessions, depending on the development.

“You might even have time between exchanging contracts and paying your deposit to save extra money prior to the completion of the purchase of the property.”

But buying off the plan also comes with unique risks. A total of 73,405 construction businesses ceased their operations in the 12 months to June 2023, according to figures released by the Australian Bureau of Statistics.

“If the builder goes broke, you may lose your deposit,” Mr Winter said. “Another top concern is that the sunset clause may allow the builder to refund the deposit and terminate the contract if the building of the property is not completed by a certain date.

“There’s also a chance the final build may not meet your expectations. As you have not actually inspected the property you are buying based on the plans and specifications provided by the developer”.

While recent state law changes aim to protect off-the-plan land buyers from sunset clause terminations, units aren’t included.

Before buying off the plan, Mr Winter said everyone should be asking themselves:

 Who are you buying from?

What’s the builder’s reputation? How experienced are they in this type of work, and can they be trusted? Have a look at some of their completed projects and see if you’re happy with the final product.

How would you feel if they needed to extend the construction period?

The rate an owner is entitled to claim from the builder per day of delay is usually provided for in the schedule of the contract, but it has to be genuine – it can’t be an outrageous figure. But if you aren’t comfortable with the possibility of your construction period being extended, an off-the-plan purchase might not be the move for you.

Will they follow up on work after the settlement if there are defects?

A contractor must repair any defects noticed at handover or within 12 months of when the work is finished. But after that, the cost can fall on the owner/s of the build, which is why it is imperative you check a builder’s previous work to make sure you know what you’re buying into.

For more information, please contact:  

Natasha Innes | 0416 705 514 | natasha.innes@comparethemarket.com.au

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