A loophole in New South Wales legislation is allowing developers to cash in on the boiling property market by backing out of deals before contracts have been exchanged.

The practise, dubbed the "sunset clawback", lets developers take a deposit and hold it for a lengthy period while construction is underway, then rescind the deal when the project is all-but finished and resell to someone for a higher price.

Self-funded retirees Suzy Seal and her husband John recently returned to Sydney after living overseas.

"We were going to come back to retire and we decided we'd like to have an apartment in the city," Ms Seal said.

They decided to live in inner Sydney and purchase a second apartment to provide them with a rental income.

Since they did not need to move in straight away, buying properties that were still under construction seemed like a good idea at the time.

"As far as we were concerned, it was a purchase off-the-plan," Ms Seal said.

"We paid the 10 per cent, we paid the stamp duty.

"Before we did it we sort of looked in and we saw the builder and people had built other things, other projects.

"It all seemed fine and ... they were supposed to be ready in 18 months' time.

"We'd be coming back, we were looking forward to a very nice retirement."

They discovered the deal was not going to go through and were devastated.

"Every time we'd been in Sydney, in fact April this year, we went to the block and were shown around and the builder then told us, 'oh, it's all going to be ready in six weeks'," Ms Seal said.

"That was April this year and then in the July, exactly after the sunset clause was up, we received a letter from the solicitors saying the contracts were rescinded and we should get our deposits back.

"I was in complete shock. I could not believe it."

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 23 seconds 5 m Nick Grimm speaks to people burned by 'sunset clawbacks' Download 9.9 MB

Migration consultant Tara Ende found herself in the same boat after buying an investment property off-the-plan in the same development.

"You know, we had put our deposit down in good faith," Ms Ende said.

"We had gotten ready for settlement, we got our funds together and really we were expecting to settle any day and then basically it was all off."

Ms Ende is still unsure whether what happened was unlawful.

"That would need to be tested in a court of law," she said.

"Look, it's always a risk because you don't know if property prices are going to go up or down and I guess we were willing to take that risk whichever way it went.

"Property prices have increased quite substantially since we did buy off-the-plan and some of the properties in that development are being advertised at the moment for significantly more than what the original contract price was for."

NSW Government considers legislation to protect buyers

Christine Manolakos, a conveyancing and property law expert, said her suburban legal practise had been inundated with cases of property buyers who had become victims of sunset clawbacks.

"We've been inundated by prospective purchasers that have been burnt with these sunset clauses," Ms Manolakos said.

She said the power was with the developers.

"They generally put these clauses in there to favour their position, and obviously in a market like the market in Sydney at the moment, the developers are using every technical aspect of these clauses to get out of the contract, void the contract and resell the property to a new purchaser for more money," she said.

Legal proceedings have been initiated against developers who have exploited the sunset clause on off-the-plan purchases, with the court's ruling against some of those who have cashed in on the loophole.

The New South Wales Government is reportedly considering introducing new legislation to protect buyers.

Ms Ende and Ms Seal plan to give off-the-plan investments a wide berth in future.

"We kind of trusted this off-the-plan and it certainly back-fired big time on us," Ms Seal said.

Ms Ende agreed, saying: "I wouldn't buy off-the-plan again, that's for sure.

"I have been burned by this.

"I would be investing in properties that are already built."