- Hi, I'm Connie from Prosperity Finance,
sharing the best financial tips
so that you can be more successful
with achieving your financial goals.
Today, I have a secret guest.
Well, she's not really secret.
You probably meet with her several times in our channel.
So, her name is Joy Yuan.
She's associate at Turner Hopkins.
She very specialized in commercial and property law.
And because her background in commercial and property,
she always give clients the best advice
and very practical advice.
Now, today, what we're going to discuss is
about off-plan purchase.
Now, you probably heard about off-plan.
Off-plan means you buy a property based on a paper,
a piece of paper.
So, that's going to be your home or rental property
once it's been built.
Lot of people get really attracted by the promotions,
you know, it looks really nice
and normally in the good suburbs and it's brand new.
So, it's very, very, very attractive.
However, there's always risk associate
with those attractiveness.
So, today I invited Joy to discuss some of the pitfalls
with the purchasing off-plan property.
Now, as long as you pay attention to those
and get the professional advice
from your experience solicitor,
actually it could be a really good buy.
So, firstly, let's welcome Joy.
Hello Joy.
- Hi Connie, hello.
(laughs)
- Thank you so much Joy for coming along.
Joy, as I mentioned before this meeting.
Now, recently I have a client,
he actually based in Wellington.
Now, he and his wife bought a off-plan property
about two years ago.
The project actually took much longer than expected.
You know, put that aside,
they still think worse while waiting,
especially wanting some experience,
some capital grows over the last couple of years.
However, I heard of bad news few months ago
from that client, he told me that, for whatever the reason,
he didn't understand,
but somehow the contract got canceled.
He did get back the deposit,
but he was really, really angry.
He was really angry cause he said,
"If I haven't, you know,
if I have bought an alternative property in Wellington,
probably property has gone up significantly value."
But now he, you know, he'd gone back to zero.
So, he was really angry.
But I think this is just one of the risks
that associate with buying off-plan property.
There must be some other aspects.
So, today I just want you to share
with your professional advice,
obviously it's general advice, this is not personal,
but it's just to talk about
what are the pitfalls associated with off-plan purchase?
So, people become aware and maybe have, you know,
some practical tips how to minimize those risks.
- Yeah, sure, definitely, we're happy to share that.
So, first of all, just want to, you know,
explain a little bit about the concept of off-plans.
So, usually off-plans means, you know,
you enter into a purchase agreement, you buy a property,
that hasn't been,
you know, the construction well hasn't been completed.
So, you often just based on the concept plan,
and also a specification list will be your, you know,
sort of the description of your future house.
And often we see that with the off-plan purchase property
the agreement often used is drafted as documents,
that agreement that drafted by the vendor solicitor.
So, it will have a lot of unusual terms.
It will have those terms more favored to the vendor
to ensure that the purchaser can't get out of the contract
and the vendor has to, you know,
flexibility at the same time to make some changes
when they're required to do that.
So, it is very important to have those contracts reviewed
very carefully and make sure that it is,
you know, reviewed carefully
and make sure the purchaser's interest and risk
to be protected and the risk to be minimized.
So, today we're just gonna talk about,
the advice we give to first time property purchasers,
in particular about buying off-plan properties.
And usually the advice that I'll give
is from the purchaser point of view.
There's two side of, you know, homework
or due diligence need to be carried out.
Before you enter into any off-plan agreement,
it is important you, as the purchaser,
step back and look at the deal in front of you
and do some research around the developer
about the location of the, you know,
property and school zones, if you look at school zones,
make sure there's no, because make sure there's no changes,
and also the developer in particular
is experienced developers.
You can look at other previous projects
done by the developer,
how well they delivered and whether they deliver the project
within the set timeframe.
So, those are really important homework.
And also, you normally will receive a copy of the plan
and also a specification list,
which will be attached to the agreement.
So, have a read of that agreement,
especially if buying a residential, you know,
dwelling on a few simple section.
Well, have a really careful understanding about the plan,
especially if the construction, well, hasn't been,
you know, commenced
and make sure you understand how big your future house,
what the floor area will be
and what specification will be used.
So, those are the homework that purchaser must carry out,
even before you decided to enter into an agreement.
Then the next step is for the lawyers
to review off your agreement.
My advise is engage with a lawyer
before you enter into any contract.
Even when you know that sometimes some of the contracts
will have a cooling-off period,
such as seller's approval or purchase approval clause,
but sometimes some clauses would have say
that even you cancel, you know, those conditions,
your initial deposit, $2,000 or $3,000 is not refundable.
So, it is quite important,
have a lawyer at a very beginning step,
before you sign a contract, to review the terms for you
and make sure that you're happy with what you're signing.
And if we go for the details,
I know it is quite nervous for a first time,
first home buyer,
to know,
to understand and also to, you know,
have a good understanding about the process
buying off-plans,
because as first home buyer,
you haven't properly experienced buying any properties
and that the difficulties with buying off-plans
or the, you know,
and it's a lot higher than buying an existing house.
So, the usual sort of concerns we come across is the first,
you know, people will ask,
"Whether my deposit will be safe."
Normally, you know, if you buy off-plan,
you will be required pay 10% or sometimes 15%
to the purchase price as deposit.
And often people will also ask second question,
"What if the vendor, you know,
go in receivership of not completing the project,
what gonna to happen?"
And also question is about what if there's delays?
So, those are the very usual sort of questions
we come across.
And then if it's important to review
what the agreements size.
The contracts, the purchase agreement contract,
is the basis for the contractual relationship.
Everything goes by what it says in the contract.
So, when we review off the agreement,
we normally will review
see what the clauses say about the deposit.
If we're advising for a purchase,
we wanna to make sure the deposit is safe,
in a stakeholder trust account,
it can be the vendor trust account.
So, you know, the vendor cannot touch
or access to that money until settlement
or when the house has been complete building.
That's really important.
And secondly, if there's delays,
you wanna make sure there's at least a sunset clause
in the agreement.
Sunset clause sort of give a limitation
to the settlement date.
If by sunset date, the settlement is not triggered,
then the party will have the right to cancel it.
As a purchaser, you wanna make sure only the purchaser, you,
have right to cancel it, not those parties.
For the very unfortunate case,
that Connie just talked about your Wellington client,
I suspect that in his case,
the vendor may be using the sunset clause
as a reason to cancel the contract, in causing his losses.
Cause that's very unfortunate result for and disappointing
for that particular person and buyer.
But you know, if you know that
at the beginning of your contract, then this is avoidable.
So, that's part of negotiation between the parties.
And thirdly, you also want to make sure
that for material changes, you agree more to be covered,
such example if you're buying an apartment,
there should be some provision about measurement of areas.
If the final areas is different,
a lot less than what do you have sign up for,
then you want know how the purchase price will be adjusted.
Different version of that measurement clause,
adjustment clause, can give you different results.
We've seen probably four different versions.
Some versions says that, if there's a, you know,
significant area,
difference by 5%,
then whatever above 5% can be reduced by purchase price.
But some other cases maybe saying that
it to be referred to a valuer for determination.
So, we often when we come across
to those sort of measurement clauses,
we would prefer to see those versions where it says that,
if the measurement, you know, different by 2% or 5%,
then if it's, you know, then it's less than what areas,
if it's less than the estimate area
then the purchase price should be reduced accordingly.
So, there's different versions of the type of clauses
you can negotiate and I'm sure that your lawyer
will be able to help you
and make sure those important clauses
are checked out very carefully,
and reduce the risks for the buyers to buy off-plans.
Yeah.
And apart from that,
I think we also that have saw some bigger development,
there also maybe some vendor conditions in the agreement.
So, this depends on the stage of development is.
The vendor may have some of their conditions
such as the construction, sorry,
the agreement will be subject to the vendor
opting the finance
or opting the relevant resource consent or building consent.
So, have a good understanding about,
at which stage this particular project is at,
it's also really important.
For example, we don't normally,
we don't really recommend a client buy off-plans
if it's residential and it's at a very early stage,
cause there's no guarantees that the plan you see
will be the final product plan.
Is better than if the plan's already approved
by the council or almost approved,
you have a good understanding of what you will get.
And one way to put it is when you sign a contract,
you should make sure that
based on the floor plan and specification list,
you can draw a 3D plan in your head
of your house, of your future house,
including what kind of door handle,
you know, how you walk in, the layout,
the bedroom and the all the material.
So, that's very important for a purchaser to do those
and just have a good understanding
of those off-plan properties.
So, it reduce the risk of that.
Yeah.
- Great, thank you Joy.
There's actually lot of aspects that need to be aware.
It's really important that you do get
real experienced solicitor who has, you know,
done similar either, you know,
worked with development in the past
or they have support their clients
with settlements of off-plan property.
Otherwise it could be really daunting,
really overwhelming
(laughs)
- I know.
- And lot of risks before the settlements.
Yeah, definitely there are some factors
that outside over control, like,
you know, like the weather, the council progress,
but you know, at least you could do,
I guess, 70%, 80%, minimize those risks.
That will smooth out your whole kind of a journey.
So, really great tips, thank you so much.
Finally Joy,
so, if people are looking to buy off-plan property,
do they just get in touch with any solicitor
or they need some criteria who is, you know,
experienced in this area, what is the criteria normally?
- I'll just say that experienced property lawyer,
would be great.
So, they have come across different sort of
off-plan agreements in the past,
especially if you're buying an apartment.
So, that lawyer's familiar with those apartments
sale and purchase agreement.
There'll be also,
helps to have a good understanding about it
and sometimes a solicitor if they've act for vendor
or developer in the past.
So, knows, you know, the both side of the story
and make sure that a practical advice is provided to you,
and that's always really good.
- Excellent, thank you so much.
If you still couldn't find anyone that fit the box,
contact Joy.
(laughs)
So, you will find Joy's contact detail in this video below.
Thank you so much Joy. - [Joy] Okay.
- Thanks for the listeners.
Thank you for your time.
If you've found our video useful,
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So, they can benefit from that as well.
All right, I'll see you next time.
Bye for now, thank you Joy.
- Thank you Connie.
- [Connie] Bye.
- Bye.