Buying property ‘off the plan’ means committing to buying a property that hasn’t yet been built. For both potential home owners and property investors, buying off the plan can be more affordable and flexible than buying an existing property but also comes with other considerations. The vendor typically has an allotted time frame, as mentioned in the contract, in which the lots will be completed.
- The purchase price can be less compared with an established property, as developers typically offer lower prices and financial incentives early on in order to secure the project, especially before construction starts
- Often you’ll only have to pay a deposit to the developer and then pay the remaining balance on completion of the property. This means you’ll have more time to save before settlement while the property is being built
- Even though you may not have had to pay the full balance, your property may increase in value as it’s built, providing you with capital growth
- There’s more tax depreciation available on new properties, meaning you can maximise benefits and improve after-tax cash flow
- The earlier you get involved in buying off the plan, the more ability you may have to customise your property, including choosing the location and even the floor plans and finishes
- Depending on your state or territory, you should be protected by builders’ warranty insurance while your property is being built, which means certain structural or interior building faults that emerge within a certain timeframe must be repaired by the builder
- In NSW, stamp duty is payable on an off plan contract on the earlier of completion or 15 months from the date of the contract for sale. Under conventional contracts for sale, stamp duty is payable on the earlier of completion and 3 months after the contract is signed. A person buying ‘off plan’ has additional time to build savings or earn interest on monies that would otherwise be used to pay stamp duty
There are often government grants available for buyers purchasing new or off the plan properties
- Though you can plan meticulously, the final product will not be known until the property is fully built
- There are some instances where development doesn’t go ahead. You should get your deposit back if this happens, but by tying up your money you may have missed out on interest and capital gains through other investments
- Things can be delayed, which may also tie up your money. Look for any ‘sunset clause’ in the contract of sale to see how long the developer has to finish the project
- Although banks and other lenders may offer conditional approval (finance in principle) for off-the-plan purchases before construction commences, they won’t actually loan you any money until at least the property is built and they have performed a valuation of the finished product and re-evaluated your financial situation
- Your ability to service the loan and/or resell can be impacted by a change in your financial position, market falls or interest rates rises between the time you agree to buy and actually purchase the property
- You may need to spend time researching the people involved in the project, such as the developer, builder, architect and financier. Are you confident that they’ll perform the job to the quality you expect? Make sure you know what brands are being used for things such as fixtures (e.g. the dishwasher and oven), as well as what alternative brands will be used if the first choice isn’t available.
- If you’re an investor the developer may offer a rental guarantee, however these costs are often incorporated into the purchase price and only last for a limited time. Look at comparable properties in the area so you can estimate whether you’ll be able to afford the property when the rent returns to market value.
- Other properties may be being built in the same area, so contact the local council to check zoning as well as future developments to ensure they won’t impact your purchase.
Further information is available here.