If you’re a foreign investor buying off the plan property in Australia, here’s our step by step guide to take you through the purchase process so you know what to expect at every stage.
Buying a property is likely to be one of the most expensive purchases you ever make and the purchase process varies between countries. Whilst the purchasing process is inherently the same across all Australian states, there may be some minor variations.
You’ve done your research, gathered data and information, run analysis of the likely performance of the property you want to buy and have secured the lowest possible price. What next? What is the purchase process for buying off the plan Australian property?
Step 1 – Buying property in Australia? Make sure you buy in the right entity
As an investor buying overseas property it is critical to ensure you are purchasing the property in the right entity (as an individual, company or trust) as making changes to the entity which owns the asset at a later date might trigger a taxation event and make it unfeasible to do so.
It is really important to make sure that you have thought about this carefully, so make sure that you’ve thought about this well in advance of entering into the legal process of buying a property. You should seek independent specialist taxation advice on this matter.
Step 2 – Offer and Reservation
When you’ve identified the property you wish to purchase you will need to pay a reservation fee to reserve that property. Reservation fees vary but are in the region of $5,000 depending on the development. A reservation form will be prepared by the agent and signed by you and the agent / developer. You will need to supply personal identification documents including ID and proof of address. The property will be removed from the market during this period and the reservation fee will be returned to you when you have paid the 10% deposit on exchange of contract (see details below under ‘Deposit’).
Step 3 – FIRB Approval
Non-Australian citizens are required to submit a purchase application to the Foreign Investment Review Board (FIRB). Developers of large apartment schemes may have already gained FIRB approval for a portion of properties they intend to sell directly to foreign purchasers. Foreign buyers must not proceed to exchange of contract until they have FIRB approval. If the developer does not hold FIRB approval and you are from overseas, you must apply to the FIRB directly. You can find out more about FIRB here.
Step 4 – Solicitors or Licensed Conveyancer Instructed
You will appoint a conveyancer or solicitor to facilitate the transaction process. Your conveyancer or solicitor will review the sales contract and carry out the necessary searches. In some circumstances, searches may be carried out post exchange of contract, the contract should give adequate protection for you should the searches disclose any problems but ensure your solicitor checks this for you.
The conveyancer or solicitor must be licensed to practice in the state where the property is located (in Western Australia, conveyancers are known as Settlement Agents). You may waive your right to any cooling-off period if you have a solicitor or conveyancer acting on their behalf. We strongly recommend appointing a solicitor, even if this results in forfeiting a cooling-off period.
Step 5 – Exchange of Contracts
When your solicitor or conveyancer confirms they are satisfied with the contract, you will sign one copy of the contract, the developer will sign another. You will pay your deposit (usually 10% of the purchase price) and the two signed contracts will be swapped or ‘exchanged’.
Deposits will be held in trust until settlement, there are some slight variations between states surrounding deposits. Further information on protection of deposits can be found in our Buyers Guide to Australia. For your copy, please email [email protected]
Cooling Off Periods
Some states of Australia allow buyers ‘cooling off periods’ which allow you to withdraw from a contract without legal repercussions.
At the expiry of the cooling off period (if one applies) the contract becomes legally binding and both the buyer and the developer are committed to the sale. Should you withdraw from the sale at this point you will forfeit the deposit you have paid and have no recourse for this to be returned. You risk being sued by the developer for any financial loss if they subsequently sell the property for a lower price than was agreed with you.
Step 6 – Construction Updates
If you have purchased a property off the plan 2 or 3 years prior to the building being completed from a reputable developer, they will keep you regularly updated regarding the construction process and how this is impacting the estimated settlement date. A tentative settlement date will be included within the contract, but this may change due to the construction process taking more (or less) time than expected.
Step 7 – Obtaining a Mortgage
If you require a mortgage, you should seek the advice of a mortgage broker. We recommend you start preparation at least 3-6 months before your expected settlement date. This is especially so for foreign investors – the process will take longer than if you’re an Australian citizen.
You’ll find more information about mortgages in our Buyers Guide to Australia.
Step 8 – Pre Settlement Inspection and Practical Completion Inspection
Prior to settlement, most reputable developers will ask you to attend a pre-settlement inspection which allows you to check that the developer has met all their obligations under the terms of the contract. If any defects are recorded, the developer should then arrange for these to be remedied.
As an foreign investor, you probably wont be present to carry out the inspection yourself, so you should engage a building inspector to complete the inspection on your behalf. They will compile a report listing any defects with reference to the National Construction Code and relevant Australian standards.
At practical completion, inspection will be carried out by the Principal Certifying Authority (PCA) to ensure the property is safe to live in and has been built in accordance with the Building Code of Australia (BCA) and state building laws. If the PCA are satisfied that these requirements have all been met, an Occupancy Certificate or Certificate of Occupancy will be issued. Your solicitor will ensure that all relevant certificates and approvals are in place before you settle on the property.
Step 9 – Settlement Preparation
The contract you have signed will provide an estimated settlement date, but obviously this may change during the construction process due to unforeseen circumstances such as inclement weather or supply chain issues.
As such, most off the plan contracts include a clause alongside the estimated settlement date that will state ‘settlement may be 14 days after registration of the plan of subdivision, whichever is the later’. In some instances, you may only be provided with 7 days’ notice to settle.
If you are purchasing from a reputable developer and agent you should have been kept up to date throughout the construction process, so that any significant changes to estimated settlement dates do not come as a shock.
When you have been advised of the settlement date, you will need to arrange for the remaining balance to be paid to your solicitor. The solicitor will arrange to draw down the mortgage funds from your lender. Other costs will also be payable on completion, details of which are found in our Buyers Guide to Australia. The most significant of these costs will be Stamp Duty. You can find out more about costs related to buying off the plan property in Australia in our article here.
Stamp Duty is payable in all states, but the liability arises at different times in the conveyancing process. You can find out more in our Buyers Guide to Australia. If payment is not made within the specified timeframes you will incur fines and interest charges on the outstanding amount.
Step 10 – Settlement
On the day of settlement, your solicitor will transfer the remaining balance to the vendor’s solicitor and will complete the final procedures. There is no requirement for either the vendor or you to be present at settlement.
Step 11 – Post completion
Most investors will appoint a letting management company to find a tenant and manage the property. Many developers will have a recommended letting and management agent who can advise landlords. Fees will vary depending on the state and location of the property.
Investing in off the plan property is a well trodden path and providing you buy from a reputable developer should be a smooth process, the key is to do your research and know what to expect. If you have any questions, do let us know. We are happy to help.
We hope you found this blog useful. If you’re at the start of your overseas investment journey, you may also want to read up on the purchase procedures in New Zealand or the United Kingdom in our online Buyers Guides to New Zealand and the United Kingdom.
Important notice: Proptech Pioneer and its associated companies seeks to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect. You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, conveyance, lawyer or financial advisor. You should seek independent advice from independent professionals before making any investment decision.