Rising markets bring out the best intentions from people who consider buying off-plan as an aspirational way of achieving their next life goal.
Project marketing salespeople see the look of excitement first home buyers have putting a deposit down for what will become their new home, new families have securing their next home, and investors have finding their first, or next investment property. Purchasing intent off-plan is seen as an opportunity to own property, participate in the market and start realising the great Australian dream of owning one’s own home or building long-term wealth through property ownership.
In Canberra, we are fortunate to have a large proportion of property developers who value their relationship with purchasers and seek to deliver high quality projects. When undertaking the development process, property developers engage specialist teams of leading consultants to assist with managing project risk including, but not limited to planning, construction, legal, finance, marketing and sales. It is a challenging role described by one highly experienced development consultant as requiring the skills of a ‘specialist allrounder’.
Engaging leading consultants when all parties have positive intent enables higher quality outcomes to be delivered. Having witnessed many times a room full of consultants collaborating to resolve challenges, I can confidently say in most instances Canberrans are fortunate to have a contingent of highly qualified project professionals residing within the Territory.
There is, however, a very small minority of participants in this space who have the unenviable track record of taking advantage of naive purchasers. This minority use their financial resources to set up sophisticated corporate structures and contractual arrangements to create the maximum amount of optionality in their favour. If you compare this to the average purchaser who baulks at spending $1,600-$2,300 on conveyancing fees, from the moment a buyer pays their deposit, a significant imbalance is created.
To manage complex and sometimes uncontrollable risks, off-plan contracts provided to purchasers generally have timeframes for the developer to secure approvals, pre-sales, financing, etc., and commence construction. In the event they fail to achieve what is required, the contract provides a right to rescind and refund the deposit to the buyer. It is uncommon to see developers exercise rescission rights; however, there are some less fortunate developers who seem to regularly take on overly ambitious projects or ones exceeding their financial capabilities and end up in a position requiring them to rescind contracts.
Rescission by the developer can be detrimental for buyers who have exchanged contracts with the belief they had secured a property. This can cost buyers tens, if not hundreds, of thousands of dollars in potential equity plus risk not being able to buy back in at future prices should values continue rising. Buyers need to do their homework and invest in high quality legal advice to minimise their risk of entering a contract to buy from an unscrupulous developer.
With Sam Dodimead, local property professional and host of Canberra Property Podcast where you can get to know the consultants contributing toward delivery of new buildings. Stream from wherever you listen to podcasts.
Editor’s note: Sam Dodimead is the listing agent for a number of developments where off-plan purchases can be made.