A feature of modern real estate practice is for purchasers to buy
a property "off the plan", that is when the development is still
in the planning stage and has not yet been constructed.
There are many obvious advantages of this practice; a vendor can
secure pre-commitments which guarantee the viability of his project
and, in a rising market, a purchaser can secure the property at
today's prices.
However, there has been recent publicity to the effect that, following
the Asian currency crisis, there may be attempts by some purchasers
to avoid the obligation to complete despite having signed a contract
and paid for a 10% deposit.
There are many risks for a purchaser in acquiring a property which
he cannot inspect. The purchaser cannot see what the property looks
like, the standard of finishes, the practical layout, the size and
dimensions or the view or the outlook.
These problems can only partially be overcome by viewing a demonstration
unit, video presentations and sample finishes. In addition to the
aesthetic issues, there may be financial factors which the purchaser
will find difficult to estimate.
These include the anticipated state of the rental market at the
time of completion, projected property values at the time of completion
and estimates of likely maintenance contributions which will be
payable.
A purchaser should make every effort to understand the issues which
will arise in construction of the development; apart from the unit
itself, these will include the style, appearance and finish of common
areas, likely noise, proposed security system, visitor parking,
access to garages, ventilation, garbage disposal and landscaping.
To develop an understanding of such issues in a particular project
requires painstaking research and healthy scepticism; a purchaser
should not buy off the plan "on a whim".
Having undertaken the groundwork himself, and having sought the
opinions of experts in relation to the proposed development, what
protection can the purchaser obtain in the Contract document?
The Contract should include:-
- A
copy of the draft Strata Plan showing the lot and any garage,
car space, storeroom etc.
-
-
A
scale plan of the interior of the unit showing internal improvements.
-
A
copy of the approved plans and specifications.
-
A
schedule of the finishes and appliances.
-
A
description of the "title" proposed to be registered.
-
The
obligation of the vendor to construct using new materials, in
a proper and workmanlike manner and within a specified time
frame
-
A
specific obligation on the vendor to construct the building.
-
An
obligation on the vendor to commence construction within a specified
time frame.
-
A
mechanism in the Contract to deal with "variations".
-
A
dispute procedure.
-
A
rectification provision (typically this will provide for the
vendor to rectify defects which arise within say three months
but will exclude shrinkage or minor settlement cracks).
-
Provision
for the developer to supply details of building costs to facilitate
a depreciation claim against income by the purchaser.
There can be rewards in buying "off the plan", particularly in the
case of a development in a highly desirable location.
However, it is not uncommon for a purchaser to be disappointed when
he sees the final product; such a purchaser will then be keenly
interested in whether he has a remedy if the developer has misrepresented
the property.
