Once an off-the-plan Contract for Sale has exchanged and the 10% deposit has been paid, there are 2 other payments which a purchaser needs to be conscious of.
Stamp Duty
For all property purchases in New South Wales, the purchaser is liable to pay stamp duty. This liability arises when the Contract is signed and exchanged by both parties to the transaction. If you are eligible for the NSW Government’s First Home – New Home Scheme, you may receive a full exemption from stamp duty. If you are not eligible for this exemption, for off-the-plan Contracts stamp duty must be paid within three (3) months from whichever of the following occurs first:
- at completion/settlement of the property;
- assignment of the whole of any part of the purchaser’s interest under the Contract; or
- 12 months from date that the Contract for Sale is executed.
Your Mortgage
Generally, off-the-plan Contracts are not subject to finance. This means that loan approval prior to exchanging Contracts is vital if you do not have sufficient funds to personally finance the purchase of your property. When purchasing off-the-plan properties, in particular, for a first home buyer, it can be very difficult to obtain full finance approval from a bank. This is simply because banks need to do a valuation before they can provide financial approval, and if a property has not been built, they cannot value it. Usually for off-the-plan properties, the bank will offer pre-approval. However, a pre-approval is not a guarantee that the bank will give you a loan and usually has an expiry date of 3 to 6 months. By the time settlement rolls around, the banks will reassess the loan application. When the property eventually settles, circumstances may have changed and the bank may not be willing to lend the same amount. After the development has been built, possibly a few years after you exchanged Contracts, you will receive a notice from your lawyer. Your Contract should indicate how many days after receiving the notice you have to settle on the property. If you miss your completion date, you may have to pay high penalty rates. In addition, if you delay settlement for an extended period, the developers can elect to terminate the contract and keep your 10% deposit. If your settlement on an off-the-plan property is approaching and you require unconditional loan approval, it would be wise not to do certain things, including but not limited to;
- signing up for a new credit card;
- obtaining other loans;
- defaulting on existing commitments which you have; or
- changing your employment, especially to a role which decreases your salary.
Conclusion
To conclude, you should be fully aware that investing in an off-the-plan property is long-term strategy. Careful consideration should be given to your contractual obligations, which could extend over a number of years, and your financial obligations which may not manifest until several years later.
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