In the last ten years, purchasing a property "off the plan" has grown and changed so dramatically that with the advances in technology and the internet, information on this area of buying a property has never been better.
One of the important considerations you will need to make when buying a property is; should I buy an established home or off the plan? Whilst the excitement of being the first person to live in the home and the flexibility to choose your floor plan and colour schemes may be appealing, there are also some common pitfalls that you need to be aware of if you intend to buy off the plan.
The below information will help you to establish the pros and cons of buying a ready built home off the plan.
Benefits to buying off the plan:
- Lock in a price – One of the advantages of buying off the plan is that you will pay the current market price for a property, even though it will be completed in the future.
- Securing a high value asset for a low initial capital outlay – While a deposit is made to secure the property (usually 10%), the entire payment doesn’t need to be paid until the property has been built. This provides you with time to organise your finances and if required sell your existing home without the need for bridging finance.
- Increase in property value – If the market experiences growth, the property you purchase off the plan today may increase in value when you settle two years later.
- Tax advantages – If purchasing for investment purposes, you may be able to claim depreciation on your tax for items like fixtures and fittings. It is important to consult your Accountant to find out if you are eligible.
- Stamp duty savings in some states – State governments (in certain states) offer bonuses and reductions in stamp duty for buying off the plan which can save you thousands of dollars.
- Seven year builders guarantee – Newly built properties in Australia come with a 7 year builders guarantee which means structural or interior building faults must be repaired by the builder
Risks to buying off the plan:
- Falling property market – There is a risk that you may pay too much for a property if the market falls between the exchange of contracts and building completion. If this does occur you may find it difficult to secure finance for the full amount.
- Failed expectations – As many builders do not allow you to see the property until construction has completed, there is a risk that what you envision is not what you will receive. The quality of work may also not meet your standards.
- Rising Interest rates – Interest rates could increase before you settle on the property which is problematic if you wanted to fix the term of the loan at the current interest rate.
- Bankruptcy – Many buyers fear the developer could go into liquidation before the project is completed. You need to ask what the options are if this occurs; will you get your money back and what guarantees do you have?
- Non completion - The builder may take too long to complete the construction therefore making the contract void and the purchaser can miss out on buying the property after waiting for so long.
Ensure you engage a Solicitor or Conveyancer to check the terms of the contract before you enter into any agreement. They will explain the legal aspects of the purchase.
Before you sign the dotted line…
- Visit the property site and check the location. Be comfortable in the project you’re buying into.
- Carefully inspect the display home, models and plans. Investigate the fixtures, fittings and finishes.
- Research the market conditions and speak to an expert to determine the property prices.
- Research the developer & builder. You may wish to:
- Ask how long they have been in the industry and how many properties they have built.
- Visit your developer’s previous work, inspect the quality and speak to previous clients to determine their satisfaction with the property.
- Ask questions to determine what is covered as part of the purchase price, for example, what fittings, floor coverings, painting and decorating is part of the package and what is additional.
Carefully review the contract with a legal professional. Take note of:
- The completion date.
- If there are penalties if you withdraw from the contract.
- If you can visit the site during construction.
- If you can make changes to finishes and fixtures.
- What happens if the developers run into financial problems and what happens to your deposit?
- What happens if faults are identified post-completion?
Most importantly, do your own research and make an informed buying decision and you could find that