Following the recent collapse of property developer Ralan Group, Queensland’s peak real estate industry body, the REIQ, is reminding potential buyers of the unique risks associated with off-the-plan contracts, which in the Ralan case may result in the loss of the initial deposits for hundreds of purchasers.
While deposits are often kept in a separate trust account, some purchasers elected to release their deposits through a side agreement, allowing Ralan Group to use the funds as unsecured loans, reducing the likelihood of any refunds.
“It’s been reported that around 1100 people had entered into contracts for off-the-plan homes at Ruby Collection on the Gold Coast,” said REIQ CEO Antonia Mercorella.
“It would be heartbreaking for that many people to lose not only the possibility of the home or investment they had purchased, but also lose their deposits.
“This is a reminder of the importance of seeing legal advice and undertaking appropriate due diligence when making these types of purchases.
“When you enter into an off-the-plan contract, you must remember that it is quite different to purchasing an established property and comes with its own set of unique risks.
“Contracts often include flexibility for the developer to make changes to the floors plan and/or other features within the dwelling.”
Ms Mercorella said while contracts included a guide to ongoing fees, these were often subject to change.
“Ultimately, the developer may never proceed with the build for a number of possible reasons, such as if pre-sales aren’t met, or, in extreme situations such as the Ralan case, the developer could fall into administration.”
Of course, there are many advantages to buying off the plan, such as saving on stamp duty costs, and the ability to purchase at the current value, which may increase post-completion.
“Buyers are also able to get involved with selecting finishings and other design elements.”
“Despite the many benefits though, the Ralan Group collapse does highlight the need for additional caution when entering into this type of contract,” said Ms Mercorella.
“Enter with your eyes wide open. Understand the contract – seeking legal advice is of paramount importance to ensure you are protected to the maximum degree possible.”