Buying Off the Plan: What to Know Before You Sign

Buying off the plan means agreeing to purchase a property that has not yet been built, based on plans, specifications, and sometimes a show home or CGI renders. It is a common way to purchase new apartments and townhouses in New Zealand, and it can offer genuine advantages. However, it also introduces risks that do not exist when buying an existing property. At Chaperone, we want buyers to understand both sides clearly before committing to what can be a significant and extended purchase process.

How Off-the-Plan Purchases Work

When you buy off the plan, you sign a sale and purchase agreement based on the proposed development. A deposit - typically 10% - is paid to the developer, usually held in trust until settlement. Settlement occurs when the building is complete and title can be transferred, which may be months or even years after signing. This means you are committing to a purchase price today for a property that will not be yours until some future point. The gap between signing and settlement introduces variables that would not be present in a standard property transaction.

Finance Approval and Timing Challenges

One of the most significant complexities of off-the-plan purchases is the interaction with mortgage finance. When you sign the agreement, you may obtain conditional finance pre-approval, but lenders will not provide formal approval until close to settlement. Lending conditions, property valuations, and your own financial circumstances can all change in the period between signing and settlement. If property values in the area have fallen by the time the building is complete, the lender's valuation may come in below the purchase price you agreed to, which can affect how much they are willing to lend. It is worth having a candid conversation with a mortgage adviser about this risk before signing.

Price and Specification Changes

Off-the-plan contracts typically include provisions that allow developers to make minor changes to the building or its specifications during construction. What constitutes a minor change can sometimes be open to interpretation, and it is important to read the contract carefully and understand what variations are permitted. The sale price you agreed to is generally locked in, which can work in your favour if property values rise during construction but can feel less comfortable if the market softens. Your solicitor should review the contract thoroughly before you sign and explain the implications of any developer variation clauses.

Developer Risk

Purchasing off the plan introduces a layer of counterparty risk that does not exist in standard property transactions. If the developer encounters financial difficulties or the project does not proceed, your deposit should be protected if it has been held in a proper trust account - but this is worth verifying explicitly before paying. Researching the developer's track record, checking whether they have completed similar projects, and understanding the financial structure of the development are all worthwhile steps. Your solicitor can help you assess the contract terms that protect your deposit and outline what happens if the development does not complete.

Potential Advantages

Despite the risks, there are genuine reasons why many buyers choose off-the-plan purchases. New builds typically come with a full builder's warranty and the peace of mind of a brand-new property with modern energy efficiency standards. The purchase price is locked in at the time of signing, which can be advantageous if values rise during the construction period. Some buyers also appreciate the ability to select finishes or make minor customisations early in the process. For those using the First Home Grant, new builds attract a higher grant amount than existing homes, which can make off-the-plan purchases particularly appealing for eligible first-home buyers.

Due Diligence Steps Worth Taking

Before signing an off-the-plan agreement, it is advisable to have your solicitor review the contract in full, paying particular attention to sunset clauses, developer variation rights, and deposit protection arrangements. Understanding the sunset clause - the date by which the developer must complete the project or either party can cancel - is especially important. Speaking with a mortgage adviser about how lenders treat off-the-plan purchases and what to expect at settlement is also a sensible step. At Chaperone, we can connect you with advisers who have experience guiding buyers through off-the-plan transactions and can help you navigate the finance piece with confidence.