New laws 'increase risks' for investors

Aviate Group’s Neil Smoli said the landscape for off-the-plan investors is changing and it has never been more important to seek expert advice before signing on the dotted line.

Under the NSW Home Building Amendment Act, which takes effect today, changes to the warranty a builder must provide for a new development are redefined and the distinction between structural and non-structural defects has been abolished.

A six-year warranty period now applies to new buildings in the event of a major defect; otherwise only a two-year period applies. A major defect is defined as a threat of collapse, an issue with structural performance or something that makes the building uninhabitable.

Aviate Group said this means that unless the defect is major, as defined by the new legislation, after two years the builder is able to wash their hands of any issues with the development.

Mr Smoli said this obviously leaves purchasers in a potentially precarious position.

“Investing in property is typically seen as low risk, but it’s only low risk if you take all the necessary precautions and undertake the proper due diligence prior to investing,” Mr Smoli said.

“Limiting the ability of purchasers to take action against builders for defects means the need to work only with builders and developers with a proven track record is vital. The company responsible for delivering a project must take pride in their work and be able to demonstrate that their other projects have been an enduring success.”

Mr Smoli said although most investors do significant research and due diligence before making a purchase, under the new framework this may not be enough.

"Profiling the developer, the builder and the architect and the quantity surveyor on a development should be part of every investor's due diligence. Investors who fail to investigate all project partners face an increased risk of defects, that the end product will differ from the one promised, or perhaps the development may never come to fruition," he said.

“To undertake this profiling effectively and thoroughly requires specific expertise from an investment property specialist who prioritises your security and is familiar with the national landscape of new residential developments.”

Mr Smoli said evaluating the capacity for a builder and developer to deliver on a project is a "large research task in itself". 

“For instance, investors should understand how a company’s other projects have stood the test of time, whether their expertise translates to the specific product or market they are currently operating in, and whether the financiers for the project are reputable lenders willing to back the project.

“Investors looking to maximise their security should seek expert advice before deciding on a property. While the most successful investors already realise this, it has never been more important given the changes in building legislation,” Mr Smoli said.