Buying Off the Plan in Victoria: Key Risks and Protections
Buying off the plan — purchasing a property before it is built — can offer advantages such as stamp duty concessions and the ability to lock in a price in a rising market. But it also carries risks that are unique to this type of transaction. Victorian law provides some protections, but buyers need to understand what they are getting into.
The sunset clause
Off-the-plan contracts typically include a sunset clause — a date by which the development must be completed. If the development is not completed by the sunset date, either party may be entitled to rescind the contract. Victorian law now restricts vendors from using sunset clauses to rescind contracts opportunistically in a rising market.
Changes to the plan
Developers sometimes make changes to the plan after contracts are signed. Victorian law requires vendors to notify buyers of material changes and gives buyers the right to rescind in certain circumstances. However, what constitutes a material change is not always clear, and disputes can arise.
Deposit protection
Your deposit is held in a trust account and cannot be released to the developer until settlement. This protects your deposit if the developer becomes insolvent before completion. However, it does not protect you from a developer who completes the project but delivers a product that does not match what was promised.
Valuation risk
By the time settlement occurs — which may be two or three years after you signed the contract — the property may be worth less than the contract price. Your lender will value the property at settlement, and if the valuation comes in below the contract price, you may need to find additional funds or renegotiate.
Getting legal advice before signing
Off-the-plan contracts are complex documents, often running to many pages. They typically favour the developer. Having a conveyancer review the contract before you sign can identify unfavourable terms and give you the opportunity to negotiate or walk away before you are committed.
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