Blog - Residential
DEVELOPERS EXPLOITING BUYERS – NSW GOVERNMENT SAYS NO
Can we keep allowing developers to take advantage of the little guy?
No, says the Minister for Innovation and Better Regulation, Victor Dominello, who is heading the NSW Governments initiative in giving the power back to the buyer. “Purchasing a property is a life-changing decision and we need to ensure consumers are protected against exploitative practices”, says Dominello.
Off the plan property becoming more prevalent
Buying property off the plan is becoming more common as it allows buyers to future plan their housing.
Marketing and selling off the plan can enable land to be developed in an efficient, cost-effective way, however a major loophole has become apparent leading developers to take advantage of innocent buyers, the sunset clause.
Essentially, a sunset clause notes that if the project is not completed by a certain time then the contract is void. The buyer’s deposit will be refunded and they are free to look elsewhere. This is where developers take advantage by deliberately running over the time limit, refunding the deposit, for then to sell the blocks on at a higher price. This is extremely suitable in a hot market as the developer benefits from the increased capital gain, whereas the initial purchaser reaps no benefits from the capital growth over the period of the development as well as losing out on other opportunities within the timeframe of the development.
Resolving the issue
Looking to resolve the issue, the NSW Government of Fair Trading seek to launch a survey regarding ‘off the plan’ property sales, gathering deeper insight in to the concerns regarding sunset clauses.
Dominello suggests we only allow the purchaser to void the contract if the construction runs over the given date. This provides the buyer with the choice as to whether they rescind the deal or not. Alternatively, upon the termination of the contract and re-sale of the same unit, the NSW Government could look at enforcing damages payments to the initial purchaser equal to the difference on the sale price between the two contracts.
The result from this could see an increase in consumer power in the largely seller-driven real estate market. Power to the people, this could prove to be a major step forward for the would-be buyers of off the plan developments.
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