Guide to Buying Off-Plan and Unregistered Properties
Essential
When buying “off-the-plan,” you’re committing to purchase a property that hasn’t been built yet, relying on proposed construction plans. This approach is popular with apartments, units, and townhouses.
Another type of off-the-plan purchase involves unregistered land. This is when a developer subdivides a larger parcel of registered land with an as-yet unregistered subdivision plan. Local councils must approve and register the subdivision plan before settlement. When you sign a contract for unregistered land, you’re buying a “Lot” in an unregistered subdivision plan, meaning the specific lot isn’t fully established. This leaves room for potential adjustments in boundaries, easements, and other details.
Buying off-the-plan properties has some inherent risks. Apartment finishes may differ from expectations, or in the case of unregistered land, unexpected easements or lot size changes may occur, which could lead to disappointment.
However, in a rising market, locking in a purchase price can be beneficial, as property values may increase before you settle.
Understanding the Finance Process and Key Risks
Unless your purchase is close to completion (within 90 days), you’ll likely need to commit to buying without finalising financing until settlement is due. Here are important points to consider regarding finance and risk:
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Finance Clauses Provide Limited Protection
Contracts often include a finance clause, typically lasting 14 to 28 days. Yet, for developments or land releases, registration and settlement might be six to 36 months away, sometimes with delays. If settlement is more than 90 days away, the developer may not allow valuers to inspect the property. At best, you may secure a pre-approval, based on your current financial standing, but this is not equivalent to an unconditional finance approval. -
Valuation Risk
During the wait for settlement, the property market can fluctuate. When the property is finally valued, if it’s worth less than your contract price, lenders will base their loan on the lower of the two amounts. For example, if you contracted to buy a property for $500,000 intending to borrow at 80%, a lower valuation could mean you’d need additional funds to cover the difference. Plan ahead by preparing extra savings or backup support. -
Lending Policy Changes
While a properly done pre-approval is usually valid for three months, frequent policy changes mean a new application may be required after 90 days. If your situation changes or interest rates rise, it could impact your borrowing capacity, potentially complicating the purchase process.
Common Issues to Plan For
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Changes in Your Circumstances: Job loss, reduced work hours, or family changes may impact your borrowing capacity. Taking on new loans or missing bill payments could also affect your credit file.
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Policy Shifts by Lenders: Interest rate increases or lending policy changes can reduce your borrowing power. Lenders or mortgage insurers may restrict loans based on location or saturation in a particular development, which could impact your approval chances.
When is Off-Plan Purchasing Less Risky?
Purchasing off-the-plan is less risky if you’re close to completion or registration, allowing you to secure finance within the last 90 days of the settlement period. In this case, it operates more like a standard purchase.
Preparing for the Unexpected
If you’re prepared to proceed with an off-the-plan purchase that’s not near completion, here are some ways to protect yourself:
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Have sufficient funds set aside to handle potential valuation shortfalls (ideally 10-20%).
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Plan finances around any future needs and potential living cost changes, especially if the project extends towards the contract’s sunset clause date.
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Avoid stretching to your maximum borrowing limit, leaving room for unforeseen changes.
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Ensure your application is suitable for multiple lenders, reducing reliance on a single lender in case policies shift.
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Assess the security of your job and your ability to quickly replace your income if necessary.
These strategies can help you make an informed decision and navigate any challenges that may arise during the off-the-plan purchasing process.
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Disclaimer
This website has been prepared with all due diligence and care, based on the best available information at the time of last update. Fortifi Finance holds no responsibility for any errors or omissions within. Any decisions made by other parties based on this information are solely the responsibility of those parties. Capstone Mortgage Solutions Pty Ltd ACN: 665 796 234 is an authorised credit representative 547296 of Australian Finance Group Ltd ACN 066 385 822 (AFG) Australian Credit Licence 389087.




