I am interested to hear experiences of other investors who may have experienced similar issues and any advice they may have.
I placed a deposit for an off the plan property in Melbourne 2 years ago when I was living in Sydney (I am Australian) and working full time. The property was not due to be settled for two years. I sought advice from a mortgage broker and conveyancing lawyer about risk and process. At the time, I understood the risk to be losing my 10% deposit.
Fast forward two years and the property is now settling. I have since moved to the UK and after a time without work, set up my own consultancy 6 months ago. As a result I have been unable to secure a loan, despite best efforts with about 6 brokers, nor have I been able to nominate another buyer via family or friends, or using a reputable agent and advertising for 2 months.
The developer flagged several months ago that I was liable for "damages" if I did not settle. I was confused by this and asked my conveyancing lawyer what "damages" meant, he initially brushed it off. As it became increasingly clear that they were serious, the lawyer then said it was my fault and it was a standard contractual term. After reviewing the contract I was unable to locate the term (the lawyer has since directed me to it), I also reviewed all communications with my lawyer and cannot find any mention of this risk, despite a very specific email where I asked about "risk" when departing Australia.
Additionally I have had the property agent who initially sold me the property and appears to have a commercial arrangement with the developer, wanting to take management authority of the property, which from what I understand to mean they will have authority to sell the property at any price. And I would then have to pay "cash" to cover the difference. E.g. the property is worth $500K, I paid a $50 deposit. If they sell it for $300K I will have to pay $150K in cash + commissions + fees. When I questioned this approach, they responded to my lawyer saying if I passed in the property I would "cop heavy penalties".
I have been quite amazed at how unregulated the industry appears to be, from all angles, including the developer, the agents and legal/conveyancing industry.
I have a few questions for members of the forum:
- Are other investors aware of this risk?
- Why is it not covered broadly in media discussions of the risk associated with off the plan investments? Even now I am aware of it, I have struggled to find a single mention of it (in my view it is clearly a much bigger risk than losing a deposit)
- What are the requirements on the developer to prove they made all attempts to achieve the best price for the property? (e.g. not sell it to a mate for half the price)
- Which body actually governs this and why do they not do more to inform investors, similar to the risk warnings across all other financial investments? (When reviewing my contract I expected perhaps I had missed something on Page 1 in bold stating the risk of damages + losing the deposit, but there is nothing)
- Has anyone else had this experience and how did you deal with it?
I have since been in touch with the legal advisory service in Victoria who has advised that it's possible once a loss is realised I may be able to take action against my lawyer. I am also currently in the process of appointing a lawyer in the UK, on the advice of the legal advisory.
Who would have thought that what appeared to be a strategic way to invest my savings would result in the risk of bankruptcy and months of headaches! I would like to ensure other investors are aware of the true risk associated with off-the-plan. Over the period of two years it is not uncommon for individual's circumstances to change considerably and I think few would invest in off the plan if they had full knowledge.