Off the plan sunset clauses undergo independent review
With off the plan properties becoming much more popular and a common sight within our major Australian cities, a relook at the off the plan sunset clauses is in need of independent review as cases of developers misusing sunset clauses to their own advantage make the news.
With the property market in Sydney reaching near boiling point, some developers are rescinding their contracts when the project is still under construction in order to resell the same properties at a far higher price, thus leaving buyers fuming from missing out on the property they thought they were buying and no longer being in a position to buy as property prices have increased beyond their reach.
In order to identify how widespread the issue actually is, The Urban Development Institute of Australia (UDIA) NSW has urged the State Government to conduct an independent review into the reported misuse of sunset clauses for off the plan property contracts.
According to UDIA NSW Chieft Executive Stephen Albin, the government first needs to determine exactly how many incidences there have been of developers taking advantage of the sunset clause by purposely rescinding contracts after the sunset clause to resell properties at a far higher price. The government will then be able to determine who these developers are. In spite of such practices happening, Mr Albin believes this behaviour is not common practice.
Mr Albin stated, “Our view is if this is happening, and it’s rare that it does happen, then it needs to be stopped. Because people act in good faith they expect the counter party to act in good faith, and we have to resolve this issue.”
Instead of the government basing its policy responses on anecdotal reports, Mr Albin believes it is essential an independent review is carried out to fully understand the extent of the problem.
If the Conveyancing Act 1919 was to undergo a reform then serious considerations about the implications on the housing supply would be required as it could adversely affect the ability to raise development finance.
“The government’s proposal to allow only purchasers the option to rescind contracts during the sunset clause could have a negative impact on a project investor’s ability to secure finance to build homes because of the increased risk,” he said.
“The market is also rising now, but if and when it dips, purchasers should not have the option to rescind a contract simply because a dwelling is worth much less than it was when they entered into it,” he said.
“Any new legislation must be measured and balanced, and before any changes, it’s vital the government establishes the scope of the issue.”
Whilst penalising dodgy developers that are purposefully going beyond the sunset clause to make a substantial amount of money needs to be addressed, developers who deliver a project beyond the sunset clause due to reasons out of their control such as application delays from the council should not get penalised.
In order for us to fully understand the extent of the problem, the Minister of Innovation and Better Regulation Victor Dominello has announced a public consultation on the use of sunset clauses.
With growing concerns about the way sunset clauses are being used to rescind off the plan contracts, especially in booming markets like Sydney, an independent review is thought to help identify how much of a problem this actually is and to help find ways to solve this problem without adversely affecting developers being approved for finance.
As more and more of us today are looking to buy a property off the plan, it becomes even more critical to ensure that we are purchasing a legitimate property and more importantly that we buy from reputable developers.
Buying the wrong property or one that does not go ahead can cost us in both time and money. Although buyers may get their 10% deposit back if they have put it in a trust account, they would have lost valuable time in the market and missed out on lower property prices.
“Purchasing a property is a life-changing decision and we need to ensure consumers are protected against exploitative practices,” Mr Dominello said.
Even though there are a few developers out there who might be misusing sunset clauses for their own good, there are far more that are reputable and at iBuyNew we pride ourselves on working with reputable developers that deliver high quality off the plan properties in a timely fashion.
To ensure that you purchase a property from a reputable developer or you want to know more about buying a property off the plan, you can speak to one of our Property Consultants at iBuyNew who will be able to assist you further.
Published on 28th of September 2015 by Marty Stanowich