Off-the-Plan Mistakes First Home Buyers Make

Underestimating the Sunset Clause Risk

A sunset clause allows either party to walk away if construction hasn't been completed by a specified date. Developers can use this clause to cancel contracts if property values have risen significantly since you signed, then re-list at a higher price.

Consider a buyer who signed a contract for an off-the-plan apartment near Ashfield Station in mid-2024 with a sunset date 24 months away. Construction delays pushed the project past that date, and the developer exercised the sunset clause. The buyer's deposit was returned, but the identical unit was re-listed at $85,000 more than the original contract price. The buyer had already given notice to their landlord and arranged finance. They ended up paying more for the same unit or starting the search again.

You can negotiate sunset clauses. A longer sunset date gives the developer more flexibility but also more opportunity to cancel if the market moves in their favour. A shorter sunset date protects you but may not account for realistic construction timelines. In our experience, buyers should request the developer's consent be required for any extension beyond the original sunset date, rather than allowing automatic extensions.

Treating Pre-Approval as Settlement-Proof Finance

Pre-approval is based on your financial position at the time of application, not at settlement. Off-the-plan purchases often settle 12 to 24 months after contract, and lenders reassess your application closer to completion.

If your income drops, your employment changes, or you take on new debt during the construction period, your borrowing capacity can fall. Lenders also revalue the property at settlement. If the completed apartment is valued below the contract price, you may need to increase your deposit to cover the shortfall.

A buyer approved for a $650,000 loan with a 10% deposit financed an off-the-plan townhouse in Ashfield. Between contract and settlement, they changed jobs and took a $12,000 annual pay cut. At settlement, the lender recalculated their borrowing capacity at $610,000. The buyer needed an additional $40,000 to settle or risk losing their deposit. This situation is common enough that anyone purchasing off-the-plan should keep their financial position stable between contract and settlement, avoid taking on new debts, and confirm any job changes with their broker before accepting an offer.

Miscalculating the Deposit Timeline

Off-the-plan contracts typically require a 10% deposit, but the payment structure is staged. You might pay 5% at exchange, another 5% at slab down or another construction milestone, with the balance due at settlement.

Buyers often assume they need the full deposit amount upfront. In reality, you need 5% at exchange and time to accumulate the second instalment before the construction milestone. If you're relying on savings over time or the First Home Super Saver Scheme, the staged deposit can work in your favour. However, if your contract requires 10% upfront or at slab down within a few months of signing, you need that amount saved and accessible before you commit.

The Australian Government 5% Deposit Scheme removes Lenders Mortgage Insurance for eligible buyers purchasing with a 5% deposit, but participating lenders still require proof of genuine savings or acceptable sources such as a gift from immediate family. Ashfield's proximity to Sydney CBD and strong public transport links make it popular with first home buyers, and off-the-plan apartments in the suburb often fall within the New South Wales price cap of $1,500,000 for the scheme.

Ignoring New South Wales Stamp Duty Thresholds

New South Wales offers a full stamp duty exemption on new and existing homes valued up to $800,000 for eligible first home buyers, with a sliding concession on properties between $800,001 and $1,000,000. Off-the-plan purchases are treated the same as other new builds under this scheme.

Many buyers assume the contract price is the only figure that matters. The exemption is based on the dutiable value, which is generally the higher of the contract price or the market value assessed by the Office of State Revenue. If your contract price is $780,000 but the assessed market value at the time of contract is $820,000, you fall into the concession range rather than receiving the full exemption. This can add thousands of dollars to your upfront costs.

The First Home Buyers Assistance Scheme in New South Wales also requires you to move into the property within 12 months of settlement and live there for at least 12 continuous months. Off-the-plan buyers sometimes overlook this when purchasing in developments that won't be completed for two years. The 12-month occupancy period starts from settlement, not contract, so delays don't affect your eligibility as long as you move in within 12 months of taking possession.

Overlooking the Valuation Gap at Settlement

Lenders order a valuation when the property reaches practical completion. If the valuer assesses the completed apartment below the contract price, the lender will base your loan on the lower figure.

A valuation gap is more common in a cooling market or in developments where comparable sales have fallen since contracts were signed. Ashfield's off-the-plan market has seen valuation gaps emerge in larger developments where multiple units settle simultaneously, creating an oversupply of comparable sales data at similar or lower prices. If your contract price is $750,000 but the valuation comes in at $720,000, and you have a 10% deposit, your loan amount stays the same but your loan-to-value ratio shifts. You may need to cover the $30,000 gap in cash or pay Lenders Mortgage Insurance if your deposit no longer meets the lender's requirements.

Some buyers using the Australian Government 5% Deposit Scheme assume the scheme protects them from valuation gaps. The scheme guarantees the difference between your deposit and 20% of the property value, but the property value is based on the lender's assessment, not your contract price. Both the purchase price and the assessed value must be at or below the applicable price cap.

Missing the Construction Loan Requirement

Off-the-plan house and land packages or townhouses that require progress payments during construction are financed as construction loans, not standard home loans. Construction loans release funds in stages as the build progresses, and the application process involves additional documentation including building contracts, council approvals, and progress inspection reports.

Buyers who obtain pre-approval for a standard home loan often don't realise their approval doesn't cover a construction scenario. The lender needs to assess the builder's credentials, review the contract for fixed-price terms, and structure the loan to align with the payment schedule. If you're purchasing land in Ashfield with plans to build, or buying a house and land package where the builder requires stage payments, confirm with your broker that your loan structure matches the contract. Construction loans also generally require a larger deposit than completed properties, often 10% to 20%, and may not be available under the Australian Government 5% Deposit Scheme depending on the participating lender's policy.

More detail on structuring finance for builds is available on our construction loans page.

Signing Without Legal Review of the Contract Terms

Off-the-plan contracts are weighted in favour of the developer. Clauses covering variations, defects, delays, and deposit forfeiture are standard, but their specific wording determines your level of risk.

A variation clause might allow the developer to change internal layouts, finishes, or apartment sizes within a tolerance of 5% without your consent. A defects clause might limit your rights to claim for issues identified after a certain period. Buyers who sign without a solicitor reviewing these terms often find themselves with less recourse than they expected if the completed property differs from the plans or marketing material.

Ashfield's off-the-plan market includes both boutique developments and larger projects from interstate developers. Buyers working with smaller local builders may have more room to negotiate contract terms, while larger projects typically use standard contracts with little flexibility. Either way, a solicitor experienced in off-the-plan purchases should review the contract before you exchange. They can identify clauses that expose you to unnecessary risk and negotiate amendments where possible.

Call one of our team or book an appointment at a time that works for you. We work with first home buyers in Ashfield who are purchasing off-the-plan, and we can connect you with solicitors and lenders who understand the specific risks involved in these contracts.

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