extracted from Sydney morning herald
Jason Dowling and Marika Dobbin
April 9, 2011
Off-the-plan housing contracts in Victoria will soon come with a ”warning notice” on the front page as concerns escalate about complicated contracts favouring developers and a large number of housing projects that may never be delivered.
A senior Melbourne developer has warned that not all projects currently being sold off-the-plan in Melbourne would be built, while new research from property agency Oliver Hume shows construction is yet to begin on a third of high-rise apartment projects that have been marketed in Melbourne for more than six months.
One disillusioned first home buyer told The Saturday Age he recently had his bond refunded after waiting 17 months for work to begin on his $285,000 one-bedroom apartment in inner Melbourne.
Advertisement: Story continues below The 35-year-old, who did not want to be identified, said the developer last month cancelled his contract via a ”sunset clause” the home buyer was unaware of. ”I have now come 17 months down the track and am starting afresh again but property prices in that area have gone up to $340,000 to $350,000 for a one-bedroom – so it is out of my reach.”
He said anyone considering buying off-the-plan should get a good lawyer who read the contract well, and not one recommended by the agent or developer.
One industry source said developments delayed by planning permit applications or a lack of finance could be cancelled a year or two after sales had began.
The developer would then reconfigure and relaunch the development in a market where property prices had increased.
A spokesman for Consumer Affairs Victoria said Victoria’s laws would be changed this year to include a new warning notice on the front page of all off-the-plan contracts to inform the buyer that:
?The deposit is negotiable.
?There may be a long time between signing the contract and the sale being completed.
?The value of the property may change during that time.
In addition, all off-the-plan deposits will have the backing of a ”statutory guarantee fund”.
Opposition planning spokesman Brian Tee called on the Baillieu government to immediately launch an investigation into off-the-plan sales, including how many home buyers were being marooned by off-the-plan sales with no construction date in sight.
”I am very concerned that hundreds of Victorians are at risk right now,” he said. ”The government must act quickly before others lose out. This is urgent.”
Buyers advocate Mal James had some stronger advice about off-the-plan sales: ”(A) you shouldn’t buy them; (B) refer back to point A – it is as simple as that”.
”I have never bought an off-the-plan for a client, never, not one, and we have been involved in thousands [of house purchases].”
Mr James said claims of big savings for off-the-plan sales were an illusion, with properties often valued above the market rate.
He said developers sold properties off-the-plan to transfer risk from themselves to the buyer. ”They have got speculative investment. They are trying to reduce the risk they are taking by getting other people to fund that risk.”
He said contracts often ran into hundreds of pages and included clauses allowing developers to delay, cancel or make major alterations to what was promised.
Australand property developer Rob Pradolin defended off-the-plan sales. ”There are thousands and thousands of people who save a lot of money with off-the-plan sales,” he said. But he added that not all off-the-plan sales in Melbourne currently being sold would be delivered. In December, he predicted 30 to 40 per cent of apartment projects being advertised for Melbourne would not go ahead.
Robert Larocca from the Real Estate Institute of Victoria’s recommended buyers undertake thorough due diligence for all property purchases.