Buying off the plan means purchasing a property — typically an apartment or townhouse — before it has been built, based on architectural drawings, floor plans, and developer marketing materials. Off-the-plan purchases can offer benefits like stamp duty savings in some states and the ability to secure a property at today’s price for future settlement. However, they carry significant risks that investors must understand before signing a contract.
How Off the Plan Purchases Work
- Contract exchange: You sign the contract and pay a deposit (typically 10%) before construction begins or during early construction
- Construction period: The developer builds the property — typically 1–3 years
- Settlement: When construction completes and the property receives an occupancy certificate, you complete the purchase — paying the balance of the purchase price and receiving the title
During the construction period, no mortgage is required — you are simply holding the deposit with the developer (in most states, held in trust).
Potential Benefits of Off the Plan
Stamp duty savings (some states)
Some states offer stamp duty concessions on off-the-plan purchases — notably Victoria, which has historically offered duty concessions based on the degree of construction completed at the time of contract. The concession effectively reduces duty for buyers who contract before the building is completed. Rules vary and change — always verify current rules with your state revenue office or a conveyancer.
Securing at today’s price
If property values rise during the construction period, you purchase at the contracted price — potentially below market value at settlement.
Higher depreciation deductions
New properties have the highest depreciation benefits — all plant and equipment is brand new, providing maximum deductions under Division 40 and Division 43.
Risks of Off the Plan — Critical for Investors
1. Valuation risk
This is the most significant risk for investors:
- At settlement, your bank will conduct a valuation of the completed property
- If the market has fallen since contract exchange, the bank may value the property at less than the contracted purchase price
- You must still pay the contracted price — but the bank will only lend against the lower valuation
- Result: You must fund the “valuation gap” from your own cash resources
Example: Contract price $650,000. Settlement valuation: $590,000. Bank will lend 80% of $590,000 = $472,000. You must produce $650,000 – $472,000 = $178,000 — not $130,000 as originally planned.
2. Developer default / project failure
If the developer goes into administration or cannot complete the project, you may:
- Lose your deposit (if not properly held in trust or if there are deficiencies in the trust arrangement)
- Experience a long delay and uncertainty before contract is voided or project is completed by another party
3. Sunset clauses
Some off-the-plan contracts include sunset clauses — provisions that allow either party to terminate the contract if the project is not completed by a specified date. There have been documented cases of developers deliberately triggering sunset clause terminations to re-sell at higher prices in rising markets. Check for sunset clause terms and their implications before signing.
4. Changes from plan
The completed property may differ from what was presented in marketing materials. Finishes, fixtures, views, aspect, and even floor plans can change. Read the contract carefully — particularly the specifications schedule and permitted variation clauses.
5. Oversupply risk
Off-the-plan purchases are most common in high-density apartment projects. Multiple projects completing in the same area simultaneously can create oversupply, pushing down rents and capital values at the very time you are settling.
Due Diligence for Off the Plan Purchases
Before signing an off-the-plan contract:
- Engage a conveyancer or property lawyer to review the contract before signing
- Research the developer: Track record, completed projects, financial stability
- Understand the sunset clause provisions and your rights
- Research the location’s supply pipeline: How many other apartments are completing nearby?
- Model a settlement shortfall scenario: Can you fund a $50,000–$100,000 valuation gap?
- Confirm deposit trust arrangements: In most states, the deposit must be held in a trust account
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Frequently Asked Questions
Is buying off the plan a good investment in Australia? Off-the-plan purchases carry meaningful risks — particularly valuation risk at settlement and the quality of the developer. Some investors have done well in rising markets; others have suffered valuation shortfalls, defects, and delayed projects. Whether it’s appropriate depends on your financial buffer, risk tolerance, and the specific project and developer.
Can I sell before settlement? Many off-the-plan contracts allow “assignment” — selling your contract before settlement to another buyer (“on-selling”). This can be used to profit if prices rise before completion. However, it requires the developer’s consent and may have CGT and other legal implications. Check the contract terms.
What happens if the developer goes bust? If the developer enters administration, the outcome depends on the project’s financial position and what stage construction has reached. Your deposit’s recovery depends on trust arrangement terms and the developer’s financial position. Engaging a lawyer before signing to understand risk is strongly recommended.
This article provides general financial information only. Off-the-plan purchases are complex transactions. Always obtain independent legal and financial advice before signing any property contract. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.