Our firm, NS Legal, has recently received a number of enquiries from clients about purchasing off-the-plan properties in Australia. We expect many prospective buyers – especially overseas buyers – will encounter similar questions, so we have prepared this article to address the issue.
Case Studies: Buying Off-the-Plan in Australia
Case Study 1: An international student purchasing an off-the-plan property
We recently advised an international student studying in Australia, whom we will refer to as Ms A. Ms A came to us about purchasing an off-the-plan apartment in Sydney as an investment. However, the apartment was not being purchased directly from the developer – another buyer no longer wished to complete the contract and was on-selling the property to her. After reviewing her circumstances, we advised Ms A that she was not eligible to purchase this off-the-plan property in Australia.
Case Study 2: An Australian PR purchasing an on-sold off-the-plan property and seeking the First Home Owner Grant
Client B is an Australian permanent resident (PR) who asked us to assist with the purchase of an off-the-plan property being on-sold by another buyer. Client B advised that this was their first property purchase in Australia and wished to apply for the First Home Owner Grant. We advised that they did not meet the eligibility criteria, because the property would not be considered a new home. Client B was puzzled – this was their first home, the off-the-plan contract had not settled, and no one had lived in the apartment, so surely it must be a new home. Why, then, could they not access the First Home Owner Grant?
To answer this, we first need to outline how the off-the-plan market in Australia has historically operated. Previously, there were two ways an uncompleted off-the-plan property could change hands:
Off-the-plan transfer method 1
The original purchaser signs a contract of sale with the developer, then separately signs a contract with a new buyer. At settlement, the two contracts are exchanged, and the property is treated as an established (second-hand) dwelling. Because Australia only permits overseas buyers to acquire new dwellings, under this method the property can only be sold to a local buyer.
Off-the-plan transfer method 2
The original purchaser negotiates with the developer to rescind the original contract, receives the deposit back, and the off-the-plan apartment is then re-listed. Under this method the property remained classified as a new dwelling and could be sold to overseas buyers.
However, this second method is no longer available.
In 2020, the ATO introduced a new rule: once a developer has sold an off-the-plan property, from the moment the new-home contract takes effect the apartment is treated as an established (second-hand) dwelling.
In other words, under the new rules overseas buyers can no longer purchase on-sold off-the-plan properties, and the original purchaser can only sell the property as a second-hand dwelling to a local buyer.
The First Home Owner Grant and the Definition of a “New Home”
According to the Revenue NSW website, a “new home” is defined as follows:
- the property must be sold as a dwelling for the first time; and
- the property must not have been previously occupied, including by the builder, tenants or other occupants, before the buyer moves in.
Returning to the ATO rule noted above: once an off-the-plan property has been on-sold, it is no longer considered a new home. In Client B’s situation, therefore, the First Home Owner Grant is not available.
For eligible first home buyers in New South Wales – that is, those buying or building their first new home in NSW – a First Home Owner Grant (FHOG) of AUD 10,000 may be available. The first new home can be a newly built dwelling, a property purchased off the plan, or a substantially renovated property, and may be a detached house, townhouse, apartment, unit, or similar dwelling.
First home buyers may apply for the grant at the time of purchase. The lender (bank or financial institution) providing the mortgage must be an approved agent.
What are the eligibility requirements for the First Home Owner Grant?
- you must be at least 18 years of age;
- the property must be purchased in your personal name – purchases through a company or trust are not eligible;
- at least one applicant must be an Australian permanent resident or Australian citizen (for example, where a couple purchases together, the applicant for the First Home Owner Grant must be a PR or Australian citizen);
- the applicant, the applicant’s spouse, or any co-purchaser must not have owned residential property in Australia before 1 July 2000;
- the applicant must occupy the property as their principal place of residence within 12 months of purchase, and must live there continuously for at least 6 months.
- if you are purchasing a newly built house, townhouse, apartment, unit, or similar dwelling, the purchase price must not exceed AUD 600,000.
- if you are purchasing vacant land and entering into a building contract, the total of the land value, the comprehensive home building contract, and any building variation costs must not exceed AUD 750,000.
- if you are purchasing a home that has been substantially renovated by the seller, the purchase price must not exceed AUD 600,000.
- most of the home has been demolished or replaced.
- the seller, builder, or any tenant has not resided in the property before, during, or after the renovation works.
- the property is being sold for the first time since the renovation works were completed.
In addition, the grant may be available in the following circumstances:
This means that if the builder lives in the property, rents it out, or uses it for short-term accommodation, the first sale of that property will not qualify as a new home.
Final Remarks
Australian property policies affecting overseas buyers are constantly evolving. Even for buyers who are already in Australia, their visa type and length of residence can affect their ability to purchase property, and there are also many additional costs involved in acquiring real estate. Given the size of this investment, we strongly recommend obtaining advice from a specialist solicitor before proceeding, in order to avoid significant losses caused by a misunderstanding of the rules.
We have written a series of articles covering Australian property taxes and fees and Australian property law. You may find the following articles useful:
Legal matters to be aware of before purchasing property in NSW
Buying a home with as little as 2% deposit – who qualifies, and what to watch out for
Caveats – an effective tool for protecting property interests
Should you engage a solicitor or a conveyancer when buying property in Australia?
