Selling an off-the-plan property before settlement
You can sell an off-the-plan property before the settlement date. Here’s what you need to know.
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Buying a property off-the-plan doesn't mean you're stuck with the property until it's built. You can sell the property before construction is finished. While there is stamp duty, capital gains tax and other costs involved, you can actually make a profit from selling before settlement in the right market.
Selling before settlement is entirely legal, but it’s important that you know the correct process before you decide on this approach.
Why sell an off-the-plan property before settlement?
When you buy off-the-plan you put down a small deposit on a property that hasn't yet been built. While you don't technically own the property until settlement (which happens after it's completed) you are still able to sell the property once you've signed the contract.
A buyer may decide to sell on an off-the-plan property for many reasons. Their circumstances may have changed, leaving them unable to afford mortgage repayments. They may decide they need to buy a bigger place or move somewhere else. A buyer may even decide, if prices are rising fast, to sell the property on at a profit.
What the experts say
Colin Lee, National Sales Director of Australian Properties International, 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.
Given that the construction period can take between one and two years (or even longer), property prices may alter significantly during that time.
"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." In other words, a profit of $50,000.
In other cases, a buyer needs to sell before settlement if they get into financial difficulty.
How to sell an off-the-plan property before settlement
You need to take a close look at the sales contract before you sign it. Some developers place a restriction on re-sales prior to settlement. And you should definitely speak to a conveyancer for legal advice.
"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," Lee says.
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:
- Stamp duty. One of the biggest property buying costs, stamp duty does apply when buying off-the-plan. If you're a first home buyer their may be a concession in place, but this means you will have to pay stamp duty on your next property.
- Tax. If you sell and make a profit then capital gains tax will likely apply, so talk to an accountant before selling.
- Agent’s commission. If a real estate agent is involved there will be a commission you have to pay.
- Conveyancing costs. Your lawyer or conveyancer will charge a fee as well, which can be up to $1,000 or even higher.
Keep in mind that if your sale falls through then you are still bound by the contract. You either have to find a new buyer or settle when construction is completed.
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.
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