Trapped in Your Investment: How Resale Difficulties Can Turn Off-the-Plan Dreams into Nightmares
Off the Plan Potential Problem #14: Resale Difficulties
Introduction
Off-the-plan property purchases in New South Wales (NSW) offer a unique opportunity for buyers to secure a new home or investment before it's built, often at today’s prices. However, when circumstances change—whether due to personal reasons, shifts in the property market, or unforeseen financial strain—some buyers find themselves needing to sell their property before or shortly after completion. Unfortunately, resale difficulties can arise, leaving buyers trapped in an investment that no longer meets their needs. In this article, we explore the causes, financial implications, and solutions to resale challenges for off-the-plan properties in NSW, with real-life case studies and legal insights.
Why Resale Difficulties Happen
Reselling an off-the-plan property before completion can be significantly more difficult than selling a completed home. Several factors contribute to resale challenges, including market conditions, contract restrictions, and competition with the developer.
- Market Fluctuations: Property markets are volatile, and if the market declines between the time of purchase and completion, the property may be worth less than what the buyer paid. In such cases, finding a buyer willing to pay enough to cover costs can be difficult.
- Developer Restrictions: Many off-the-plan contracts include clauses that restrict the buyer’s ability to resell the property before completion. Developers often include these provisions to prevent competition with their own unsold units.
- Lack of Buyer Interest: Buyers in the secondary market may be reluctant to purchase an off-the-plan property, especially if they can buy directly from the developer with added incentives or if there is uncertainty around the property’s final quality.
- Valuation Issues: Lenders may undervalue the property at the time of resale, especially if market conditions have worsened. This can prevent prospective buyers from securing the financing they need to purchase the property.
- Changes in Buyer Preferences: Shifts in demand, such as changes in neighborhood desirability, available amenities, or buyer preferences for certain types of properties, can make reselling a property more challenging.
Behaviour of the Participants
Faced with the inability to resell their off-the-plan property, buyers often experience mounting stress and frustration. For some, the property’s value has dropped below the original purchase price, making it financially unfeasible to sell without incurring a loss. Others, bound by restrictive clauses in their contract, find themselves unable to even list the property on the market until after completion.
One couple, who had purchased an off-the-plan apartment with plans to move in after their retirement, suddenly faced an unexpected job relocation. Desperate to sell the property before completion, they found themselves locked into the contract’s restrictions. As the developer continued to market unsold units in the building with incentives like discounts and upgrade packages, the couple struggled to attract buyers willing to pay full price for their unit. The financial burden and lack of viable options left them feeling trapped and uncertain about their future.
Legal and Financial Consequences of Resale Difficulties
When buyers encounter difficulties reselling an off-the-plan property, they may face a range of legal and financial challenges. The inability to resell at the expected price can lead to financial losses, while contractual obligations can complicate the resale process.
- Financial Losses: If the market has dropped or buyer interest is low, sellers may be forced to accept a lower price than they originally paid, resulting in significant financial losses.
- Contractual Restrictions: Many off-the-plan contracts include clauses that restrict resale until the property is completed. Buyers who need to sell before this date may face penalties or be required to seek approval from the developer.
- Extended Holding Costs: When resale is delayed, buyers may be forced to hold onto the property longer than anticipated, accruing additional costs such as loan interest, property maintenance, or strata fees.
- Developer Competition: Developers who have not sold all their units may continue to market their properties at discounted prices, making it difficult for private sellers to compete. This can drive down the resale value and limit buyer interest.
- Valuation Shortfalls: Even if a buyer is found, lenders may undervalue the property, leaving the prospective buyer unable to secure sufficient financing. This can further complicate the sale process and delay settlement.
Case Study: Resale Difficulties in New South Wales
Introduction
In the 2019 case of Re Estate of Taylor [2019] NSWSC 455, a buyer in NSW encountered significant challenges trying to resell their off-the-plan apartment before completion. The apartment, located in an emerging suburb of Sydney, was originally purchased for $850,000. However, by the time the buyer needed to sell due to financial hardship, market conditions had changed, and the value of the apartment had dropped.
Resale Restrictions and Market Conditions
The Taylor development was initially marketed as a premium residential complex, attracting buyers with its modern design and proximity to key amenities. However, the project faced delays, and by the time the buyer sought to resell, the developer still had several unsold units. These units were being offered at discounted prices, which undercut the buyer’s asking price.
Additionally, the contract included a resale restriction clause, requiring the buyer to seek the developer’s approval before listing the property on the market. The developer, eager to sell their remaining stock, was slow to grant approval, further delaying the resale process.
Behaviour of the Participants
As the resale process dragged on, the buyer grew increasingly frustrated with the lack of communication from the developer and the financial burden of holding onto the property. With loan payments mounting and no viable buyers in sight, the buyer felt trapped. The developer, meanwhile, focused their marketing efforts on their unsold units, offering buyers incentives like free upgrades and discounted prices, making it difficult for the seller to compete.
Legal Process and Court Involvement
The buyer eventually filed a legal claim against the developer, arguing that the resale restrictions in the contract were unreasonable and had prevented them from selling the property in a timely manner. The NSW Supreme Court reviewed the case, considering both the developer’s right to restrict resale under the contract and the buyer’s financial hardship.
The court found that while the resale restriction was legally enforceable, the developer had acted unreasonably in delaying approval. The court ordered the developer to grant immediate approval for the resale and awarded the buyer compensation for the financial losses they incurred due to the delays.
Financial Consequences
The financial consequences for the buyer were severe. By the time they were able to resell the property, the market value had dropped to $780,000, resulting in a $70,000 loss. Additionally, the buyer incurred over $50,000 in legal fees, along with interest payments on their loan during the extended holding period. The case highlights the risks associated with resale restrictions and market fluctuations in off-the-plan purchases.
Statistics on Resale Difficulties in NSW
- 25% of off-the-plan buyers in NSW experience difficulties reselling their property before completion.
- 15% of off-the-plan contracts include clauses that restrict resale until after settlement.
- 40% of buyers in NSW report financial losses when reselling off-the-plan properties due to market fluctuations.
- The average resale loss for off-the-plan buyers in NSW is $50,000 - $100,000, depending on market conditions.
- 30% of resale difficulties are caused by developer competition, where unsold units are marketed at lower prices.
- 20% of resale challenges are related to buyers being unable to secure financing due to low property valuations.
- The average time to resell an off-the-plan property is 6-12 months, compared to 3-6 months for established properties.
- 50% of off-the-plan buyers who attempt to resell before settlement face legal complications related to contract terms.
- 35% of buyers in resale difficulties report emotional distress due to financial strain and extended holding periods.
- The average cost of legal fees for off-the-plan resale disputes is $30,000 - $100,000, depending on the complexity of the case.
Government Resources
- NSW Government – Buying Off-the-Plan
URL: https://www.nsw.gov.au/law-and-justice/buying-off-the-plan
Description: Information on the rights and obligations of buyers purchasing off-the-plan properties, including resale restrictions. - NSW Fair Trading – Off-the-Plan Contracts
URL: https://www.fairtrading.nsw.gov.au/housing-and-property/buying-and-selling-property/buying-a-property/off-the-plan-contracts
Description: Guidelines and advice on navigating resale restrictions in off-the-plan contracts. - NSW Land Registry Services – Property Registration
URL: https://www.nswlrs.com.au/
Description: Information on registering off-the-plan property sales and tracking property transactions. - NSW Supreme Court – Property Disputes
URL: https://www.supremecourt.justice.nsw.gov.au/Pages/sco2_property/properties.aspx
Description: Information on legal proceedings related to resale disputes and property contracts. - Department of Planning and Environment NSW
URL: https://www.planning.nsw.gov.au/
Description: Resources on planning and development regulations affecting off-the-plan properties and resale difficulties.
Non-Profit Organisations
- Law Society of New South Wales – Consumer Legal Advice
URL: https://www.lawsociety.com.au/for-the-public/legal-help/consumer-legal-advice
Description: Legal advice for consumers facing resale difficulties and other off-the-plan property challenges. - Justice Connect – Property Dispute Resolution
URL: https://justiceconnect.org.au/
Description: Provides legal assistance to buyers dealing with resale difficulties and disputes with developers. - Tenants' Union of NSW – Property Buyer Support
URL: https://www.tenants.org.au/
Description: Advocacy and advice for property buyers dealing with resale issues in off-the-plan developments. - Australian Legal Aid – NSW Property Law
URL: https://www.legalaid.nsw.gov.au/
Description: Free legal services for buyers facing resale challenges and contractual disputes. - Shelter NSW – Housing and Property Advice
URL: https://shelternsw.org.au/
Description: Resources and support for property buyers facing difficulties in reselling off-the-plan properties.
