{"id":6507,"date":"2015-12-02T01:00:51","date_gmt":"2015-12-01T14:00:51","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=6507"},"modified":"2015-12-02T01:00:51","modified_gmt":"2015-12-01T14:00:51","slug":"horror-story-about-buying-off-the-plan","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/horror-story-about-buying-off-the-plan\/","title":{"rendered":"Horror story about buying off the plan – Patrick Bright"},"content":{"rendered":"

 
\nIn today’s show we talk to\u00a0Patrick Bright, <\/strong>buyer\u2019s agent\u00a0from EPS Property Search. It’s\u00a0another horror story about buying off the plan. While Patrick admits he has done it he outlines what he has learnt the hard way.
\n <\/p>\n

Transcript:<\/h4>\n

Kevin<\/b>:\u00a0 Buyer\u2019s agent Patrick Bright joins me. Patrick, of course, is from EPS Property Search.
\nGood day, Patrick. How are you doing?
\nPatrick<\/b>:\u00a0 Very good, Kevin. Nice to speak with you.
\nKevin<\/b>:\u00a0 Good. Nice talking to you, too. I want to talk to you specifically about buying off the plan and what you\u2019re seeing with certain developers enacting the sunset clause. You might tell us firstly what the sunset clause is.
\nPatrick<\/b>:\u00a0 A sunset clause is a clause in a contract that says that if a property takes a certain amount of time, it has an expiry date, so if the developer is taking too long, the buyer can actually withdraw from the contract and get their deposit back.
\nBut by the same token, if the property is taking that long \u2013 usually the same date \u2013 let\u2019s say, it\u2019s a two-year project, and we\u2019re at two and a half years, the seller can say, \u201cAll right. I\u2019m going to terminate the contract,\u201d or the buyer can terminate the contract.
\nNow if the market goes up \u2013 and as we\u2019re seeing and it\u2019s been well publicized \u2013 several developers have enacted that sunset clause, given the original buyer their 10% deposit back, and then they\u2019ve gone off and resold the property for significantly more money.
\nIf the situation is on the other foot, what we\u2019re not seeing is when these projects are actually worth less money than what the purchaser signed up to buy it for at completion, the developers are making sure they\u2019re completing them within the timeframe, so their sunset clause isn\u2019t being exposed.
\nIt\u2019s a gray area from the point of view of are the developers purposefully dragging the contract out, and in some cases, are they making sure they finish in others? That\u2019s pretty much what we\u2019re seeing happen.
\nKevin<\/b>:\u00a0 Well, you probably would have seen a lot of that happening in the Sydney market with the way that market\u2019s certainly turned in the last year or so.
\nPatrick<\/b>:\u00a0 It certainly has. Yes, we have seen a lot of that. That\u2019s what\u2019s been well publicized recently of a number of developers doing that.
\nKevin<\/b>:\u00a0 You can obviously just turn around and renegotiate the contract if you want. Are you seeing much of that happening?
\nPatrick<\/b>:\u00a0 Not really. What we\u2019re seeing is they\u2019re saying, \u201cYou may have signed up to buy this property at $800,000 two years ago, but now the market has gone up, it\u2019s actually worth $1 million. Here\u2019s your 10% deposit back. I\u2019m going to re-sell it for $1 million.\u201d
\nThe buyer either pays that $1 million, or they end up with their deposit back. You have a number of problems there. You have lost opportunity cost. You\u2019ve missed out on the growth of the market over that time.
\nLook, off the plan isn\u2019t for everybody. I have personally done it myself before. I haven\u2019t done it for any clients or myself essentially since 2008. A lot of things changed in 2008. Rules affecting foreign buyers in Australia changed and allowed 100% of new development to be sold to foreigners. Previously to that, it was restricted to 50%, so that meant they had to get the sales here.
\nSo you\u2019re having a situation where it\u2019s well known in the industry that foreigners will pay a lot more than the local market, so we\u2019re seeing inflated prices, developers chasing the foreign dollar. They\u2019re getting presales, and then they\u2019re using those presales to influence local market on price.
\nEven though we\u2019ve had fantastic growth in the last couple of years in Sydney, properties are only just coming in on valuation. That means people were paying 20% or 30% more than they should have a couple of years ago because the foreign buyer is pumping up the market. That\u2019s another concern with off the plan.
\nYou have situations where they have shrinkage clauses, and they\u2019ve changed the size of the properties. There\u2019s a recently well-publicized case of a gentleman who thought he bought a one-bedroom apartment, but they changed the size of it and he ended up with a studio. Now that changes the price significantly. If you don\u2019t have a proper one-bedroom and you\u2019ve now got a studio, you\u2019re talking possibly 20% to 30% of the value of the property.
\nKevin<\/b>:\u00a0 The two major clauses there that would concern any purchaser \u2013 or they should \u2013 are that sunset clause and that shrinkage clause. Is there any way that you can knock both of those out of the contract?
\nPatrick<\/b>:\u00a0 You could if you get a developer that will agree to it. I\u2019m not aware of any that have agreed to it. When I did these off-the-plan purchases for myself and other clients in a different rule environment, we did negotiate with the sunset clause that it was our discretion not the developers. The sunset clause was there but they couldn’t terminate that clause, only we could enact it \u2013 to tie them to us, so we had the upper hand there.
\nBut getting shrinkage clauses, they ask for different percentages. Some of them are 5%. Some are 3%. You need to negotiate that. These things are negotiable, but in a strong market, you\u2019re not getting developers being flexible.
\nThis is the problem with access to the foreign buyer like never before, with unrestricted access to the foreign buyer with new products, getting the FIB approval is very simple for these guys these days. They don\u2019t have to be flexible, whereas before, they were flexible because they had to sell to the local market, as well. Now they do sell to the local market but only generally after they\u2019ve sold to the foreign market.
\nKevin<\/b>:\u00a0 It would be pretty wise, with all of these conditions floating around, that you make sure that you engage a lawyer who is a specialist in off-the-plan type purchases.
\nPatrick<\/b>:\u00a0 Very much so, Yes. Look, off the plan, as I said before, I\u2019ve done it, but more than a decade ago was the last time I did it. The rules have changed. It is concerning. You do need a lawyer.
\nI\u2019ve come to the conclusion \u2013 although, I didn\u2019t see it that way back then when I was buying myself \u2013 that it\u2019s speculating. You\u2019re not investing. If you\u2019re buying off the plan, you are speculating. Let\u2019s just call it what it is.
\nYou\u2019re taking a punt on a lot of things. You\u2019re punting on the market going up. You\u2019re punting on what interest rates are going to be like at the time. You\u2019re punting on how banks are going to value it, which is another issue.
\nBanks now have changed the rules. If you bought a property off the plan a couple years ago and you go to settle now, in the last six months, we\u2019ve had a lot of changes in the rules. Banks now want 20% deposits if you\u2019re in a capital city. Before, they would take 10%. Regionally, they want a 30% deposit. You look at these things. If you only had 10% required before, where do you come up with the other 10% or 20% if you don\u2019t have it?
\nKevin<\/b>:\u00a0 You don\u2019t.
\nPatrick<\/b>:\u00a0 Right. Now you get also a situation where you can default. What happens then is you can\u2019t pay the balance, the developer takes your 10% deposit, resells the property, and can sue you for the difference. If they sold it for 80% of its value, they can chase you for the other 10%. You\u2019re exposed. You\u2019re very exposed. It\u2019s something that\u2019s quite high risk. The deeper you look into it, you scratch your head and you wonder why you\u2019d do it.
\nKevin<\/b>:\u00a0 Certainly a lot to think about there. Patrick, I want to thank you for giving us your time and drawing that to our attention. Patrick Bright, of course, from EPS Property Search and Property Management.
\nThanks for your time, Patrick.
\nPatrick<\/b>:\u00a0 A pleasure, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

  In today’s show we talk to\u00a0Patrick Bright, buyer\u2019s agent\u00a0from EPS Property Search. It’s\u00a0another horror story about buying off the plan. While Patrick admits he has done it he outlines what he has learnt the hard way.   Transcript: Kevin:\u00a0 Buyer\u2019s agent Patrick Bright joins…<\/p>\n","protected":false},"author":176692471,"featured_media":6508,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[33,10,11,13,17,25],"tags":[101],"class_list":["post-6507","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-case-studies-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment","category-sponsored-channels","tag-podcast"],"yoast_head":"\nHorror story about buying off the plan - Patrick Bright - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/horror-story-about-buying-off-the-plan\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Horror story about buying off the plan - Patrick Bright - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  In today’s show we talk to\u00a0Patrick Bright, buyer\u2019s agent\u00a0from EPS Property Search. 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