Understanding the Risks of Buying Off-the-Plan Properties
Updated: Oct 5
A recent NSW Supreme Court matter, in which I provided independent valuation evidence, was determined in favour of the purchasers. For confidentiality reasons, I won’t identify the parties or the property involved. However, this dispute serves as a useful reminder of the risks associated with buying residential property off the plan.
The Nature of Off-the-Plan Contracts
When a buyer signs an off-the-plan contract, they commit to a property that does not yet physically exist in its final form. The contract often includes draft strata plans, proposed areas, car spaces, layouts, finishes, and other details that may change as construction progresses.
Some changes are minor, while others can significantly affect how the property is used and what a buyer would be willing to pay for it. In the recent case, one valuation issue involved the market impact of a change to the property and its car parking arrangements. My role as an independent valuer was not to determine the legal rights of either party. Instead, I focused on a simpler market question: What would the property be worth with the originally contemplated amenity, and what would it be worth without it?
This distinction is crucial. A lost car space, reduced usable area, altered courtyard, changed storage area, or different strata configuration cannot always be valued simply by applying a dollar rate per square metre. The real question is how the change affects utility, buyer appeal, marketability, and resale value.
The Importance of Sunset Clauses
Sunset clauses deserve particular attention. These clauses usually set a deadline by which an event, such as the registration of the strata plan or the issuance of an occupation certificate, must occur.
In NSW, developers cannot generally use a sunset clause simply because the nominated date has passed. A vendor typically needs the purchaser's written consent or an order from the Supreme Court permitting rescission. The legislation also requires advance notice outlining the reasons for the proposed rescission.
The broader lesson is simple: The detail in an off-the-plan contract matters.
Key Considerations Before Signing
Before exchanging contracts, buyers should pay close attention to:
Draft strata and floor plans, stated areas, and car spaces.
Clauses allowing the developer to alter the design or lot configuration.
Sunset dates and extension provisions.
Proposed by-laws, easements, and restrictions.
Schedules of finishes and inclusions.
Rights that exist if the completed property materially differs from what was originally disclosed.
NSW also mandates additional disclosure for off-the-plan sales and provides remedies in some circumstances where a purchaser is materially prejudiced by changes to disclosed particulars.
The Role of Valstar Valuations
At Valstar Valuations, I undertake independent pre-purchase due diligence and valuation work, including for off-the-plan and completed residential properties. Where a dispute has already arisen, valuation evidence can help quantify the market effect of a change, rather than leaving the parties to argue over an arbitrary figure.
Why Independent Valuation Matters
Independent valuation is critical for several reasons. It provides clarity and helps buyers understand the true market value of a property. This is especially important in off-the-plan purchases, where changes can occur during construction.
When I conduct a valuation, I consider various factors, including market trends, comparable sales, and the specific characteristics of the property. This comprehensive approach ensures that buyers receive an accurate assessment.
This article provides general property valuation information only and is not legal advice. Purchasers should obtain independent legal advice before entering into or taking action under an off-the-plan contract.
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