Buying Off the Plan in Today’s Housing Market

July 26, 2018


Buying off the plan has become a fairly common option for both owner-occupiers and investors looking for their next property to purchase in Australia thanks to the country’s long housing boom. Developers have had to scramble to meet the demand of both locals and foreign investors, offering off-the-plan apartments in multi-storey towers, units in boutique developments, townhouses, and houses in the suburbs around Brisbane, Sydney, and other popular cities.

While the pace has slowed recently – mostly because fewer foreigners are snapping up properties thanks to the new stamp duty levy they have to pay – there continues to be some excellent opportunities for Aussie buyers.

In fact, some developers are offering deep discounts to attract buyers. How does $40,000 off or a new car sound?

Add this to the other benefits of buying off the plan and these yet-to-be-built properties look even more attractive.

But, there’s a catch. Purchasing a property off the plan can also be surprisingly risky. Before throwing years of savings into a dream blueprint or refinancing your home to invest in one of these developer units, do your research and weigh the advantages and disadvantages.

Benefits of Buying Off the Plan

When you buy a property that hasn’t yet been built, aside from the newness factor, there are a few worthwhile perks that make this an appealing option. This is especially the case for investors who are looking for long-term value.

Better Value Potential

Off-the-plan apartments, townhouses, and homes often offer a better value than existing properties. Home prices are still high from Perth to Melbourne. But, after years of rising prices, experts are now predicting a gradual fall, which means that expensive house you purchased just outside of Sydney could lose up to 25% of its value as the real estate market corrects itself.

Properties being developed are still priced high but there’s the potential to get a good deal, especially if you buy early on before the construction even begins. Developers need money to fund the project, which comes in part from buyers’ deposits. So, they often offer discounted prices to get those first few units sold so they can start construction. If you can be one of those early buyers, you’re more likely to see an increase in value. In fact, you may see capital growth in your purchase before the property is finished.

Deposit Interest

Another advantage is the time you have before you have to take out a loan. You’ll need to put down a deposit, usually between 5% and 20%, but you may be able to use a deposit guarantee from your bank. In this case, the deposit stays in your bank account earning interest during construction.

Tax Advantages

If you are a first-time homebuyer in Australia, you can take advantage of tax exemptions for purchasing an off-the-plan property. Some states also offer government grants when you buy into a development. For investors, you’ll be able to claim a sizable deduction for depreciation.

Possible Input

If your property hasn’t been built yet, you’ll likely be able to make a few choices as to how the unit is constructed, such as opting for material upgrades or other features. This gives you more control over how your home turns out and saves you from having to invest in a renovation a few years down the line to get the granite countertops and high-end appliances you’ve always wanted.

Risks of Buying Off the Plan

While the newness and potential of your unit are what makes it so desirable, this is also what makes it a risk.

Property Value Could Go Down

Your property may increase in value while it’s being built but it also may decrease. This could affect your home loan as a lower property value will impact your loan to value ratio.

You May Not Get What You Expect

Unlike a home that’s already built, when you are buying off the plan you don’t have the opportunity to walk through, explore, and get a feel for the actual property. You’re dependent on the developer to ensure the house is built to your expectations.

But, this doesn’t always happen.

In fact, running into surprises, ranging from getting tile when you order timber to appliances that don’t work, has become so much of an issue that the NSW Government is introducing laws later in 2018 to help protect buyers. This new legislation will give buyers a cooling off period of 10 business days so they have a chance to see the property, and they will be able to cancel a contract if material changes are made.

Losing Your Deposit

Depending on your contract, you could lose your deposit if the developer goes bankrupt before the project is finished. This is why it’s important to have a conveyancer or other professional look over your contract before you sign anything.

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Preparing for Off-the-Plan Purchases

Because there are so many advantages, it’s worth exploring this option if you are investing or if you don’t need to immediately move into your new home. In order to make the most out of your experience and to avoid any pitfalls, there are a few steps you should take.

Identify the Costs Involved

It’s true you may be able to save with government incentives such as the first home owners grant and other concessions or by taking advantage of a discount or low purchase price. However, you also need to factor in any extra expenses such as legal fees, and property management fees if you are investing. Weigh the costs against the savings so you know what you are financially getting yourself into.

Consult with Experts

You’ll want to talk to different financial, real estate and legal professionals to make sure you are clear on the terms of the contract and your financial obligations and risks, such as a financial advisor, conveyancer, and your accountant.

Do Your Research

Make sure you look into the potential for the area. Check the local council plans for other commercial and residential developments – will they add or take away value from the area? Find out how other developments in the area have performed.

If you find the perfect property and are confident it’s a sound purchase, buying off the plan holds a lot of promise. Your last step is to find the right loan to finance your purchase. Whether you are refinancing your mortgage or are taking out your first home loan, some lenders are more hesitant to finance off-the-plan purchases. But, there are also plenty of lenders who either specialise in or frequently work with off-the-plan loans. Take the time to compare lenders and talk to a mortgage specialist if you have any questions. With a little extra effort, you could get the perfect loan for your perfect new property.

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