Buying off the plan: finance, sunset clauses and valuation risk

Buying off the plan means entering a contract to purchase a dwelling before it is built, or before the plan of subdivision creating the title has been registered. The buyer pays a deposit now and settles when the building is complete, which may be one, two or three years later.

The attractions are real: a smaller deposit committed for a long period, duty concessions in some states, a new dwelling with builder warranties, and in a rising market the prospect that the property is worth more at settlement than the contract price. The risks are equally real and are structurally different from those of buying an established home. They arise from the gap in time between commitment and completion, during which almost everything relevant can change.

How an off the plan purchase differs

Three differences drive everything else.

• The property does not exist. The buyer is purchasing a description, a plan and a schedule of finishes, not a dwelling that can be inspected.
• Settlement is years away. Interest rates, lender policy, the buyer's income and the value of the property can all move in the meantime.
• The contract is drafted by the developer. Off the plan contracts are long, are rarely negotiated in a buyer's favour, and commonly contain provisions that would be unusual in an established sale.

Sunset clauses

A sunset clause allows the contract to be brought to an end if the plan of subdivision is not registered, or an occupancy permit is not issued, by a specified date. It exists because neither party can be bound indefinitely to a project that may not complete.

The clause became controversial because in a rising market a developer could allow a project to run past the sunset date, rescind contracts signed at earlier prices, and resell at higher ones. New South Wales and Victoria both legislated in response.

In New South Wales, the restrictions introduced by the Conveyancing Amendment (Sunset Clauses) Act 2015 as section 66ZL of the Conveyancing Act 1919, and now operating as section 66ZS, mean a vendor may rescind under a sunset clause only with the written consent of each purchaser or with an order of the Supreme Court. The vendor must first give each purchaser written notice at least 28 days before the proposed rescission, setting out why it proposes to rescind and the reason for the delay. The Court may permit rescission only if satisfied that it is just and equitable in all the circumstances, and the vendor is liable for the purchaser's costs of the proceedings unless it satisfies the Court that consent was unreasonably withheld.

Victoria's provisions in Division 3 of Part I of the Sale of Land Act 1962 operate in substantially the same way. A vendor must obtain the written consent of each purchaser, after giving at least 28 days written notice setting out the reason for the proposed rescission, the reason for the delay in registration of the plan or the issue of the occupancy permit, and that the purchaser is not obliged to consent. Failing consent, the vendor may apply to the Supreme Court, which may permit rescission if satisfied it is just and equitable, with costs following the same rule.

Other jurisdictions provide less specific protection, and in those states the clause is governed by its own terms. Every buyer should establish before signing what the sunset date is, whether it can be extended by the developer without consent, and whether the clause is mutual, allowing the buyer as well as the developer to rescind.

Finance cannot be locked in years ahead

This is the point most often misunderstood. A lender will not issue an unconditional approval for a settlement that is two years away. Pre-approval is typically valid for around 90 days, and a formal approval is made against a valuation of a completed property.

The consequence is that the buyer takes the risk of every change between contract and settlement, including:

• interest rates rising, which reduces borrowing capacity because assessment is at the product rate plus at least three percentage points;
• lender policy tightening, including reduced maximum loan to value ratios for apartments, or exposure limits applied to a particular building or postcode;
• a change in the buyer's income, employment or household circumstances;
• new debts taken on in the interim, including a car loan or a credit card;
• the debt to income limit that has applied since 1 February 2026, under which authorised deposit-taking institutions may write no more than 20 per cent of new mortgage lending at six times income or more.

Lenders also apply exposure limits to individual developments, commonly restricting the proportion of dwellings in one building they will finance. A buyer may find that their preferred lender has reached its limit in that building by the time settlement approaches, through no fault of their own. The guides to how much you can borrow and debt to income ratios explain the relevant constraints.

Valuation risk at settlement

The lender values the completed property at settlement, and lends against the lower of that valuation and the contract price. Where the market has moved, or where the building attracts a discount the buyer did not anticipate, the shortfall must be funded in cash.

The following is illustrative only. Assume a contract at $750,000 with a 10 per cent deposit of $75,000 paid at exchange, leaving $675,000 to be funded at settlement. If the completed property values at $690,000:

Lending position	Maximum advance	Cash shortfall
80 per cent of valuation, no mortgage insurance	$552,000	$123,000
90 per cent of valuation, with mortgage insurance	$621,000	$54,000
95 per cent of valuation, with mortgage insurance	$655,500	$19,500

The required loan of $675,000 represents 90 per cent of the contract price but 97.8 per cent of the valuation, which is above what most lenders will advance in any circumstances. A buyer who does not have the shortfall available must find it, sell other assets, or fail to settle, in which case they risk losing the deposit and being sued for the developer's loss on a resale.

By contrast, if the property values at the contract price, a 90 per cent advance covers the balance exactly with no shortfall. The entire difficulty arises from the gap between the two figures. The guide to property valuations for home loans explains how lenders arrive at the number.

Duty concessions for off the plan purchases

Several states reduce transfer duty on off the plan purchases by assessing duty on a lower value, recognising that part of the price represents construction not yet carried out.

Victoria's off the plan concession is the best known. It allows construction costs incurred after the contract date to be deducted from the contract price when calculating the dutiable value, which can reduce duty substantially where the contract is signed early in a project. Victoria has also operated a temporary concession available to a wider group of purchasers, including investors, companies and trusts, for lots in a strata subdivision with common property, and has announced an extension of that temporary measure, subject to legislation. House and land packages that are not part of such a subdivision are excluded.

Western Australia has also operated an off the plan duty concession. Arrangements in other jurisdictions differ, and because these measures are frequently temporary and are amended in state budgets, the position must be confirmed with the relevant revenue office at the time of the contract rather than relied upon from a previous year. The general position on duty is set out in the guide to stamp duty on property purchases, and the stamp duty calculator gives indicative amounts.

The deposit and deposit bonds

An off the plan deposit is customarily 10 per cent, held in a trust account or, in some contracts, released to the developer under a statutory framework. A buyer should establish which applies, because a released deposit is exposed to the developer's solvency in a way that a deposit held in trust is not.

Because the deposit is committed for a long period, some buyers use a deposit bond or a bank guarantee instead of cash. A deposit bond is a guarantee from an insurer that the deposit will be paid at settlement, for a fee, and it does not reduce the obligation to pay. The developer must agree to accept one, and the bond must cover a term extending beyond the expected completion date, which makes bonds for off the plan purchases more expensive than for established sales.

What to have checked in the contract

An off the plan contract should be reviewed by a solicitor or conveyancer before signing, and the following are the provisions that most often matter.

• The sunset date, and whether the developer may extend it unilaterally.
• Variation clauses, which permit the developer to alter the design, layout, finishes or common property. A clause permitting changes that are not materially detrimental to the purchaser is common; what counts as material is worth understanding.
• Area tolerance, which permits the finished dwelling to differ in size from the plan by a stated percentage. A reduction in floor area can affect both value and lender policy, since many lenders apply lower maximum ratios below a defined internal area.
• The schedule of finishes, and the extent to which substitutions of equivalent quality are permitted.
• Car parking and storage, whether they are on title, and whether they are allocated or merely licensed.
• The owners corporation, including the proposed budget, estimated levies and any building management or caretaking agreement, particularly its term.
• Defect rectification, and the process for the inspection that precedes settlement.
• Whether the deposit is held in trust or may be released to the developer.

Builder and developer solvency

Construction insolvency is a recurring feature of the Australian building industry, and it is the risk that most directly threatens an off the plan buyer. Where a builder fails part way through a project, completion may be delayed by a year or more, or the project may not complete at all.

Statutory home warranty schemes provide some protection, though the detail differs by jurisdiction and the cover is typically capped and subject to conditions. Victoria replaced Domestic Building Insurance with a Home Warranty scheme from 1 July 2026, administered by the state, which extends cover to incomplete, defective or non-compliant work where the builder is unable or unwilling to complete or fix it, rather than only on death, disappearance or insolvency. Cover is capped and applies to work within defined limits. Other states operate their own schemes with their own limits and triggers, and cover for high rise apartment buildings is frequently excluded above a certain number of storeys.

Practical due diligence includes checking the developer's and builder's history of completed projects, their licensing status with the relevant state regulator, and whether the project has secured construction finance, since a project without funding may not proceed regardless of presales.

Before settlement

An off the plan buyer generally has a right to inspect the completed dwelling before settlement, and this inspection is more important than on an established purchase because it is the first opportunity to compare what was promised with what was built. Items to check include the floor area against the contract, the finishes against the schedule, the allocation of car parking and storage, and any visible defects.

Defects found at this stage are usually dealt with through a rectification process after settlement rather than by delaying settlement, because the contract typically requires settlement once an occupancy permit has issued. Recording defects in writing at inspection is therefore important for the warranty claim that follows.

Who an off the plan purchase tends to suit

It tends to suit buyers with a substantial cash buffer beyond the deposit, stable income and secure employment over the construction period, no need to move by a particular date, and a genuine willingness to absorb a valuation shortfall if one arises. It also suits buyers in states with meaningful duty concessions, where the saving is large enough to compensate for the additional risk.

It tends to suit less well buyers who are stretched at the point of signing, buyers who must move by a fixed date, and buyers relying on the property being worth more at settlement than the contract price. That last assumption is the one that has caused the most difficulty, because it converts a housing decision into a market timing decision over a period the buyer does not control. Context on price movements is available in the property market section.

This article is general information and not legal or financial advice. Off the plan contracts differ significantly and should be reviewed by a solicitor or conveyancer before signing. Buyers who would like the finance position assessed before committing may request a free assessment from an accredited broker.