Covering an off-the-plan settlement shortfall

Buying off the plan is a bet made early. You sign, pay a deposit, and wait while the building goes up. By the time it is finished, the market has had a year or two to move, and so has your bank. When the bank finally looks at the completed property, its figure can land below what you agreed to pay. The loan shrinks, and the difference falls to you.

For an investor or business buyer with equity in other property, that gap is fundable. This page explains why off-the-plan shortfalls happen, what the contract and the law say about your position, and how private funding gets you to settlement.

Why do off-the-plan purchases come up short at settlement?

The NSW Government’s guidance on buying off the plan names the risk directly: the property may be worth less than you paid by the time it is finished, and you need to be confident you can secure finance when that time comes, which may be months or years after you agree to buy. Completion does not happen until the building is finished and the plan is registered.

Common causes of a shortfall:

• The bank’s figure is below the contract price. The bank lends against its own figure, not yours.
• Lending policy has tightened. The bank lends less against new apartments or certain postcodes than it did when you signed.
• Your position changed. A new business structure, different income or more debt reduces what the bank will lend.
• Costs grew. Duty, GST adjustments and fees were larger than budgeted.

What is my position if I can’t settle?

The contract still binds you. In NSW, the Registrar General says deposit money must be held by the stakeholder in a trust or controlled money account and cannot be released to the vendor before settlement. The 2015 sunset clause laws stop developers using a sunset clause to end a contract without a Supreme Court order, unless the purchaser agrees.

Those protections cut both ways. Your deposit is safe while the contract runs, but the developer cannot easily walk away, and neither, in practice, can you. If you fail to complete, the contract’s default terms apply. Have your solicitor read them the moment a shortfall appears.

How can private funding close the gap?

Shortfall situation	Structure that usually fits	Security
Small gap, bank still settling most of the price	Caveat or second mortgage	Another property you own
Large gap, or bank conditions keep changing	Private first mortgage for the whole balance	The new property, often plus another title
Several off-the-plan settlements at once	First mortgage across several titles	The new properties and existing stock
Gap plus costs and a cash buffer	Second mortgage sized to include costs, interest capitalised	Another property you own

Because there is no formal valuation required, the private loan is assessed on the property itself, what is owing and the exit, not on the bank’s lower figure. Our page on how property is assessed directly explains the approach.

Funding only the gap, behind the bank, usually means a second mortgage or caveat, which is priced above a first mortgage because the lender sits second in line. Funding the whole balance privately can cost less per dollar but involves a larger loan. Either way, the price follows the security, LVR, term and exit, and the aim is the keenest result your purchase allows.

How does the process run before completion?

1. Enquiry. As soon as the bank’s reduced offer arrives, tell us the contract price, the gap, the completion date and any other property you own.
2. Specialist call. We confirm the structure: shortfall only, or the whole balance.
3. Indicative terms and Letter of Offer. You see the amount, term and how interest is handled.
4. Documents. Signed with your solicitor while the bank finalises its part.
5. Completion. Both lenders settle in the same electronic workspace, and the developer is paid in full.

Funding is possible within 24–48 hours once documents are in, but starting the day the bank’s letter lands keeps every option open.

What other settlement items catch off-the-plan buyers?

• GST withholding. The ATO says most purchasers of new residential premises, including off-the-plan sales, must pay withheld GST direct to the ATO at settlement. The seller must give written notice before settlement. Make sure your conveyancer has it in the figures.
• Stamp duty. Revenue NSW’s off-the-plan deferral is for owner-occupiers only; trusts, companies and investors pay on the normal timetable, generally within three months of signing. Other states have their own rules, summarised on our stamp duty funding page.
• Cooling-off has long passed. NSW off-the-plan contracts carry a 10 business day cooling-off period, which is long gone by completion.

What does an off-the-plan shortfall look like in numbers?

Illustrative example: a Sydney investor who runs a plumbing business bought a townhouse off the plan for $1.2m two years ago, paying a $120k deposit now held in trust. At completion, the bank’s figure is $1.08m and it will lend $760k instead of the $900k planned, leaving a gap of $140k plus settlement costs. The investor owns an investment unit in Parramatta worth about $750k with $380k owing. A $160k second mortgage over the unit settles alongside the bank on the completion date. Interest is capitalised, so there are no repayments. Fourteen months later, with the townhouse leased and the investor’s latest tax returns lodged, a bank refinances both properties and the second mortgage is repaid.

The deposit was protected, settlement happened on time, and the exit did not depend on the market recovering quickly.

Who does off-the-plan shortfall funding suit?

It usually suits:

• property investors and businesses buying apartments, townhouses or strata offices off the plan;
• developers taking settlement of stock or lots bought from another developer (see residual stock loans);
• buyers with equity in another property and a realistic refinance or sale exit.

It usually does not suit:

• anyone buying a home to live in;
• buyers with no other equity and a gap larger than the purchase can support;
• an exit that depends on prices rising within months.

What documents should I send?

• The contract, disclosure statement and any notice to complete
• The bank’s approval or letter showing the reduced amount
• Photo ID for borrowers, directors and security owners
• Details of other property offered and what is owing on it (our guide to a second mortgage on an investment property covers what lenders look at)
• Evidence of the exit: lease, refinance plan or sale plan

The settlement itself runs like any other two-lender completion; see settling a purchase on time. If the gap is small and urgent, a caveat loan is often quickest. Ready? Tell us the completion date and the gap.

Key terms

• Completion: settlement of an off-the-plan contract, once the plan is registered.
• Sunset date: the date by which the plan must be registered, or the contract may be rescinded.
• Shortfall: the amount still missing at completion once the bank’s loan and your deposit are counted.
• Notice to complete: a formal notice setting a deadline to settle.

Completion approaching? See if you qualify

There is no credit check when you first enquire, and your enquiry is read by a real specialist rather than sent out to a list of lenders. Our lending partner fundU lends its own funds and makes its own call, so nobody is waiting on a third party’s credit committee.

Tell us the contract price, the bank’s offer, the completion date and the details of any other property you own. Accurate answers get the right answer first time. Start your 60-second enquiry.