How buying off the plan actually works

Buying off the plan means signing a contract for a home that does not exist yet. That sounds like a leap, and the first time you do it, it is. But the process itself is well worn and reasonably predictable, and most of the anxiety comes from not knowing what happens between signing and moving in.

Here is the whole sequence.

You choose from plans, not from rooms

There is no house to walk through. What you get instead is a floor plan, a schedule of finishes, and usually a display suite showing the actual kitchen, bathroom and flooring you will receive.

Read the floor plan carefully, and check whether the area quoted includes the balcony. Two apartments advertised at the same size can differ noticeably in internal space depending on how the balcony is counted. Ask which orientation the windows face, and what is currently on the neighbouring block.

You pay a deposit, and then nothing for a long time

Deposits are commonly around ten per cent, though it varies by developer. That money goes into a trust account, not to the developer, and sits there until settlement.

Then the long middle happens. You will not pay the balance until the building is finished and the title has issued, which may be one year away or four. In the meantime you are not paying a mortgage on it, and you are not paying rent on it either.

The contract sets a sunset date

Every off-the-plan contract has a sunset date: the latest the developer has to finish. It is not the expected completion date, it is the outer limit, and it is usually generous.

This is the clause worth having your conveyancer explain properly before you sign, because what happens when a sunset date passes is not the same everywhere or in every contract.

Construction runs, and you should ask for updates

Good developers send progress updates. If yours does not, ask. You are entitled to know roughly where the build is, and a project that goes quiet for a long stretch is worth a phone call.

If your circumstances change during this period, say so early. Some contracts allow a sale of your interest before settlement, some do not, and the answer is in the contract rather than in a general rule.

Finance gets arranged near the end, not at the start

This surprises people. A loan approval obtained when you sign will have expired long before the building is finished, because approvals do not last for years.

What that means in practice: you will apply for finance properly in the months before settlement, and it will be assessed against your circumstances then, not your circumstances at signing. If your income, deposit or lending conditions have moved in the meantime, that is when it matters. Plan for it rather than assume the earlier conversation carries over.

The bank values the property before settlement

The lender will have the finished property valued. If that valuation comes in below the contract price, you may need to contribute the difference in cash, because the bank lends against its valuation rather than against what you agreed to pay.

This is the single most common source of stress at the end of an off-the-plan purchase, and it is worth raising with your broker early so you understand your exposure.

You inspect before you settle

Once the building is complete you get a pre-settlement inspection. This is your opportunity to list defects, check that the finishes match the schedule you were given, and confirm the dimensions.

Take your time. Bring the schedule of finishes with you and work through it. Minor defects are normal in a new build and there is a process for rectifying them, but they are far easier to raise now than after you have settled.

Settlement, and the keys

Title issues, your lender releases the funds, the balance is paid and the property becomes yours. Statutory warranty protection on new building work starts to matter from here, and the specifics depend on your state.

What to take from this

The two parts people underestimate are both at the end: finance is arranged near settlement rather than at signing, and the valuation can differ from the price you agreed years earlier. Everything in the middle is mostly waiting.

If you are weighing a specific project and want a plain answer about where it is up to, get in touch and we will tell you, including when the answer is that the date is not yet fixed.