Consumer Watch with Natasha Pirrottina: Avoid the risks, what to be alert to when buying ‘off the plan’

Buying a property “off-the-plan” is like investing in a concept. There’s usually the flashy billboard and glossy brochures selling you a certain lifestyle. The developer could be selling house and land packages, apartments or townhouses, but these are often subject to approvals and securing enough funding to even start building. Keep in mind that while attractive, these developments are particularly risky. They can be delayed years, or sometimes never proceed. Your deposit could be tied up for a very long time, or in some cases lost, if a company is wound up due to insolvency and steps haven’t been taken to secure the money. There can be differences in the expected and actual quality of the finished product when it doesn’t look like what you saw in that glossy brochure. The main attraction of buying off-the-plan is locking in the current property price. Buyers pay a deposit, usually no more than 10 per cent, and then pay the rest at a future settlement date. But is your deposit secure? A contract will generally ensure it’s returned if an off-the-plan development fails, but it won’t usually cover compensation. Buyers may have made significant personal commitments (like selling their home) or lost the opportunity to purchase elsewhere in a rising property market. You may have issues with getting finance possibly years down the track when a settlement date is set. For example, changes in lending policies, financial circumstances or interest rates can impact a buyer’s ability to get finance when needed. There’s a lot to consider when it comes to the contract a developer will put in front of you. Make sure it includes a condition requiring the deposit be held in a trust account of a solicitor, real estate agent or settlement agent, and not to be available to the developer until after settlement. Check it clearly states responsibilities, deadlines and consequences of unmet conditions. Some off–the-plan contracts have a fixed price clause but be aware others may have terms that allow for increases in building costs. Always compare the advertising material with the contract, as the developer should provide information on any expected variations or substitutions to design, fixtures and/or fittings. Disclaimer clauses are sometimes included to prevent you from claiming in court that you were misled by the developer. For example, images from the marketing material do not accurately portray the end product. Thankfully, you are protected by Australian Consumer Law, which makes it an offence to mislead or deceive consumers and to include unfair contract terms. It also allows consumers to take action against developers if they suffer loss as a result of conduct. The right to claim damages cannot be excluded by a contract term. Anyone considering an off-the-plan purchase should also be aware of high pressure selling techniques and be mindful that design concepts or advertising material may not live up to expectations once a project’s complete. Buying off-the-plan involves complicated contracts and Consumer Protection strongly advises you seek independent legal advice before signing. Further information about buying off-the-plan is on our website at consumerprotection.wa.gov.au. Natasha Pirrottina is senior regional officer for Consumer Protection in the Mid West