Buying off the plan
Buying off the plan could be a good way for some people to get into the market. For one, it may allow you to lock in your property’s purchase price sooner rather than later. With prices on the move upwards in many markets, this could equate to huge savings in your back pocket. However, there are also risks involved. Here’s what you should know when considering buying off the plan.
What is ‘buying off the plan’?
Buying off the plan is when you enter into a contract to buy a property before construction is finished or before building works have begun.
Often, you’ll only have to pay a 10% deposit upfront. The balance of the purchase price is usually payable once the property has been built.
1. Potentially save on price
If property prices are increasing in the area you are buying into, an off-the-plan purchase could be a clever move. Basically, you’ll be securing in a property at today’s price and potentially making a capital gain prior to completion. Developers may also offer discounts on the purchase price if you get in early.
2. Secure now, pay later
With off-the-plan purchases, you lock in ownership, then settle later. What that means is that you could save extra funds while the property is being constructed, putting you in a better financial position come settlement. Ultimately, that may result in you taking out a smaller home loan.
3. Potential exemptions or concessions plus tax savings
You may be eligible for stamp duty concessions or exemptions for off-the-plan purchases. Check with your state or territory’s revenue office.
If it’s an investment property, it’s also worth speaking to your accountant about potential tax advantages (there’s more tax depreciation on new properties, for example).
4. Get the property you want
Off-the-plan properties can be customisable, so you may be able to choose your fixtures and fittings. This could be a real drawcard if you are particular about what you want.
1. Potential for the value to go backwards
The property’s value may decrease during construction. This can be risky, as it may be difficult to get a mortgage. You can help mitigate this risk by doing ample research to ensure you’re buying in an area with solid capital growth potential.
2. There may be delays
It’s not uncommon for there to be delays on the construction of off-the-plan properties.
If this happens, you may get your deposit back, but in the meantime, it’s been tied up at no benefit to you. You may even be priced out of the market by that point.
3. Potential finance uncertainty
While lenders may grant you conditional approval for your off-the-plan purchase, they won’t actually loan you the funds until the property is built and they have done a valuation.
If your financial circumstances change or the market dives, it could affect your ability to secure finance.
4. Expectations versus reality may differ
The glossy bathroom fittings you thought looked fantastic in the developer’s catalogue may end up being cheap and nasty looking when it comes time to inspect the property.
To avoid running into this kind of scenario, thoroughly research the proposed property and developer. Ask to be given a walk-through of a demo property or another property they have built and be sure to check reviews.
Ready to get started?
If you think buying off the plan may be right for you, speak to us about how to fund your property purchase. We can help with everything from organising pre-approval and your deposit to ensuring settlement runs smoothly. We can also line you up with a reputable conveyancer who can check the contract of sale meticulously before you sign anything.