The Commissioner for Consumer Protection has highlighted the collapse of building projects across Australia, including Perth, as examples of the risks of buying property ‘off-the-plan’ at this time.
The Commissioner, Gary Newcombe said off-the-plan developments could be delayed for years, or never begun at all, as builders faced trades and material shortages, soaring construction costs and delays exacerbated by the COVID-19 pandemic.
“Deposits could be tied up for a very long time, or in some cases lost, if a company is wound up due to insolvency and steps haven’t been taken to secure the money,” Mr Newcombe said.
“Buying off-the-plan generally means signing a contract with a developer and paying a deposit which is usually up to 10 per cent of the purchase price, for a project that will be completed in the future.”
He said this could apply to vacant land, house-and-land packages or strata properties, such as units or high-rise apartments.
“Recently, we saw plans for a luxury Perth apartment tower axed, where half the apartments had been bought off-the-plan,” Mr Newcombe said.
“The developer blamed COVID-related supply chain issues for increasing costs by up to 30 per cent and has promised to refund buyers’ deposits,” he said.
“A contract will generally ensure a deposit is returned if an off-the-plan development fails. However, it won’t usually cover compensation.”
Mr Newcombe said this could affect buyers who had made significant personal commitments, like selling their home, or lost the opportunity to purchase elsewhere in a rising property market.
“A buyer risks losing their deposit altogether if a developer becomes insolvent and steps haven’t been taken to protect the deposit,” he said.
“A contract should always include a condition requiring the deposit be held in a trust account of a solicitor, real estate agent or settlement agent, and not to be available to the developer until after settlement,” the Commissioner said.
