Selling off-the-plan properties before settlement

Selling an off the plan property before settlement

Do you want to sell an off-the-plan property before its settlement date? Here’s what you need to know.

Buying property off the plan offers a long list of potential benefits to investors, but it also comes with its fair share of risks. One strategy adopted by some investors is to purchase an off-the-plan property and then sell it on before settlement even occurs.

This option is entirely legal and can have specific advantages, but it’s important that you know the correct process for doing so before you decide on this investment approach.

Why sell an off-the-plan property before settlement?

Colin Lee Headshot 2Colin Lee, National Sales Director of Australian Properties International Pty Ltd, says selling before settlement has the potential to generate high returns for investors. “This can happen when the property value of the project has increased during the construction period and the purchaser is wishing to sell for a profit,” he explains.

“As the purchaser has only paid, typically, a 10% deposit, any profit on re-sale can result in an extremely high return on his investment – e.g. Purchase Price $500,000, Deposit Paid $50,000, Re-Sold for $550,000. Return on investment 100%.”

In other cases, you may find that you need to sell before settlement to improve your financial situation. For example, if you get into financial difficulty and think you will struggle to make ongoing repayments on the loan you take out to purchase the property, you may decide to sell the property before settlement occurs.

How to sell an off-the-plan property before settlement

Although the title to an off-the-plan property doesn’t actually pass to the buyer until settlement, once you’ve signed an unconditional contract the property can be re-sold. However, you’ll need to take a close look at the sales contract before you sign it (as you would need to do anyway) because some developers place a restriction on re-sales prior to settlement.

“The contract will have special conditions and any restrictions on re-sale will be contained in the special conditions,” Lee explains. “Every off-the-plan purchaser should ensure the contract is checked by a suitably qualified lawyer prior to signing.”

The good news is that there is generally no penalty for re-selling an off-the-plan property. “Not many developers have their own sales arms, so most re-sales are handled through real estate agents or specialist off-the-plan agents including www.australianproperties.com,” Lee says.

“If a real estate agent is used to sell the property, commissions will generally be payable.”

Other factors to consider when selling an off-the-plan property before settlement

Lee also points out that when looking to re-sell an off-the-plan property, the seller needs to do their financial calculations very carefully and take into account the following:

  • Tax. Take advice from your accountant before you agree to re-sell,” he says. “Under the current capital gains tax regime, you will be required to pay tax on the capital gain you make when you re-sell the property, at your marginal rate.”
  • Agent’s commission. “If an agent brokered the resale deal for you then you will be liable to pay agent’s commission on the resale as well at the date for completion.”
  • Stamp duty buying in. Although it doesn’t seem that you actually own the property for any period of time, the law considers that you will actually take ownership of the property. As a result, it’s important to remember that you will be required to pay stamp duty.
  • Additional legal fees. “It is not a simple exercise for any lawyer to re-produce an off-the-plan contract,” Lee says. “Additional costs are inevitable.”
  • Net effect. “The net effect of these deductions needs to be considered,” Lee advises.
  • You remain bound. “Even though you have a buyer, if that buyer does not complete his contract with you, you are still bound to settle with the developer,” Lee says.

If you’ve decided that you need to get out of an off-the-plan property contract, either to get your finances back in order or to take advantage of a capital gain, make sure you consider your options and obtain expert advice before going through with the sale.

Image: Shutterstock

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8 Responses

  1. Default Gravatar
    VCJune 20, 2017

    I have off-the-plan apartment which I need to sell. I tried to contact Colin Lee mentioned in the article but found out that the company’s website is no longer accessible. Do you have any contact I can reach out to sell the apartment?

    • Staff
      JonathanJune 20, 2017Staff

      Hi VC!

      Thanks for the comment.

      finder is not affiliated with any person or company that we feature in our pages. Should you need to get help in selling your property, you can visit our mortgage broker page for further information.

      Hope this clarifies.

      Cheers,
      Jonathan

  2. Default Gravatar
    KumarJune 18, 2017

    Is it possible to pre-sell the apartments and obtain finance on that grounds before building?

  3. Default Gravatar
    garyJune 5, 2017

    someone was selling their land but she want to make side-line profit like 10k without any paperwork, she told us she paid 10k for second driveway and we were happy with that.

    she nominate that land and we settled but now we know she didn’t pay anything for second drive way, she changed MCP by request and lucky she got second driveway. so we told her we will pay you 10k but now in installment. but she want caveat.

    can she put caveat on land without any written document that we have to pay 10k for anything.

    • Staff
      MayJune 6, 2017Staff

      Hi Gary,

      Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage brokers and we do not offer home loans so can only offer general advice.

      In a general sense of definition, a caveat is basically a registration on a title of land that claims an “estate or interest” in that land and this can act a security and peace of mind to lay claim on the land and stop dealings. One of the common types of claims that support caveats is a purchaser is under a contract of sale yet to be completed. A lease is another type that supports caveat. The details of the payments whether in cash or instalments should be explained in the caveat. It would be best that you seek a legal advice from a lawyer or speak to a conveyancer if you need a guide on what else can be outlined on the caveat.

      Cheers,
      May

  4. Default Gravatar
    FranklinMay 25, 2017

    I am looking at buying an off the plan property in Parramatta and it is off the plan and going to be completed in 4 years time and need advise on off the plan as I may plan to see it before the settlement.

    • Staff
      AnndyMay 29, 2017Staff

      Hi Franklin,

      Thanks for your question.

      We have an off-the-plan buying guide on this page that may help in your decision.

      Alternatively, you may also get in touch with a mortgage broker who can give you advice in regards to your financing options.

      Cheers,
      Anndy

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