Risks of buying an off the plan apartment unit

The benefits and risks of purchasing an off the plan unit depends on the future of the property market, which is difficult to predict with certainty.  Buying an 'off-the-plan' apartment means signing a contract to purchase an apartment that is yet to be built. Under this arrangement, the buyer only sees the developer's plans, designs and renders for the property.

A possible benefit of buying this type of property is capital growth resulting from the increase in the value of the property at the time of completion of the building project. Another benefit is that buyers may be able to claim first home owners grant (FHOG) if they are purchasing their first property.

Nevertheless, there are risks of purchasing an off the plan unit which may outweigh the potential benefits mentioned above. Some of the risks with buying an off the plan apartment unit are:

  • Development failing to be completed. This could happen when the developer runs out of funds to finish the construction of the building and there are delays or difficulty with finding a new developer to take over the project;
  • The risk of your preferred design not approved by council;
  • Construction delays due to supply chains disruptions. This was a common issue during COVID-19. There were major delays in construction due to lack of building materials that were usually shipped from overseas;
  • Structural quality may not meet your expectations. This depends on which builder the developer contracts with. Each builder varies in structural quality and materials used);
  • Apartment varying from the disclosure statement. The size of the apartment may vary from what the developer provided for in the disclosure statement and further statement. The law permits up a 5% maximum change in size of the apartment;
  • The risk of the developer terminating the contract by triggering the sunset clause. As a buyer, you would have lost time and money which you could have invested in another property;
  • Low valuation. The lender may value the property at completion and sometimes the final value may be less than the purchase price. This may cause the buyer to require additional funds to settle as the bank usually lends a maximum of 80% of the valuation;
  • Off the plan contracts are not subject to finance. Nevertheless, these conditions are usually for the benefit of the Buyer. In the absence of the subject to finance clause, you will not be able to validly terminate the contract even if you do not get finance approval from the bank. Once the contract has been signed and you are unable to settle the property, the Developer may sue you for damages;

The case of Gough & Ors v South Sky Investments Pty Ltd1 highlight the importance of carefully reviewing off the plan purchase contracts. The development was described as a residential building through promotional materials. The Disclosure Statement described the apartment as 'The Oracle' but before settlement, the Developer notified the Buyer that the building was now rebranded as 'Peppers Broadbeach' and had changed its letting rights. Essentially, the property was rebranded into a residence with hotel and resort-like features. The Buyer terminated the contract on the basis that the subject matter (being the unit) is substantially different from what was contained in the contract of sale. Consequently, the Developer sued for breach of contract. The Buyer argued that he would be materially prejudiced if forced to complete the contract of sale. The Court however decided that the terms of the contract permit all the alterations.

This shows the importance of meticulously reviewing off the plan purchase contracts to ensure that sellers do not make adverse amendments closer to settlement date that are contrary to the Buyer's expectation. Consequently, off the plan contracts of sale should be reviewed by the Buyer's solicitors before the buyer executes the contract.

As off the plan contracts do not include the usual conditions allowing the Buyer to terminate the contract of sale without penalty, it highlights the importance of being absolutely satisfied with the conditions before entering into an off the plan contract of sale.  Off the plan apartment buyers should carefully review their contract of sales to ensure that the Developer is not able to make any changes to the subject matter or other major changes that would deter the Buyer from wanting to continue with the purchase.


This article does not create a Client/Attorney relationship neither is it a legal advice. The information contained in this article is for information purposes only. Readers are advised to seek from qualified Legal Practitioners, legal counselling to any questions or concerns arising from their specific factual situation. You can reach Solomons Legal at info@solomonslegal.com.au or +61 7 3117 9433 and our team will be happy to assist and advise you with your house purchase process.

1 [2012] QCA 161

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