According to Master Builders Australia, the next three years should see in excess of 200,000 new properties under construction. With all these new developments under way, opportunities to purchase units and apartments off the plan also look set to increase.
Buying off the plan can offer some significant advantages, particularly for first home buyers and property investors. In most states, buying off the plan incurs considerable stamp duty savings. And potentially, capital growth on the property can occur prior to settlement as most developers offer lower prices and financial incentives to get in on the project early.
If you’re a property investor, buying off the plan can also have some extra tax advantages. You may be able to claim depreciation on your tax for items like fixtures and fittings, so some of the costs can be recouped over time. (But this does differ from person to person according to your circumstances, so it’s important to consult with a tax professional to find out more.)
Many people are put off by the idea of buying a property that hasn’t been built yet. There seems like a lot of things that could go wrong! However, buying off the plan gives you the opportunity to negotiate with the developer on price, what’s included and how the finished product will look, so it may give you a more satisfactory result than buying an established home.
How to come out ahead when buying off the plan
Developers need fast, early sales to get a project off the ground – so it pays to get in on the project at the start. Together with stamp duty savings and government incentives, this could put you well ahead on the value of the property you’re buying. But there is no guarantee that the price you pay will reflect the market value of the property when it’s completed.
To make sure you pay the right price, you will need to do some homework about the area you are buying in. Consider other developments in the area and the number of new properties that will be coming on to the market at the same time as yours. Over supply could reduce the value of your property so you should check with the council to see what other developments are underway, talk to some local real estate agents and seek professional advice.
Additionally, when buying off the plan, the right choice of property can make your purchase worth more than the others in the same development whilst actually costing the same amount. Carefully consider all the plans in the development before making a choice – you should take the time to check out the property aspect, views, access and so on. This could help to maximise your profit potential.
Research the developer and builder
It is wise to choose an experienced developer with a good reputation in the industry. Ask to see some of the other projects the developer has completed and talk to the property owners if possible. You can also visit the company website and ask for financial information about the developer’s business. Once satisfied about the reputation of the developer, ask for the license number of the builder that will be used to construct the property. You can then run a check on local government websites to make sure the builder is qualified to complete the project and has no outstanding disciplinary actions or prosecutions against his business name.
Understand the terms of the contract
When you buy off the plan, you are buying a property that does not yet exist and may take as long as two years to complete. In an off the plan contract, you are provided with plans and specifications of what the developer intends to build and construct as the finished product.
The contract should provide highly detailed plans that include specifications for every item involved, from a floor plan layout with measurements in millimetres, to specifications for the fixtures and fittings, right down to the name and model number of the appliances that will be installed in the kitchen. Also make sure your contract includes specifications for all common areas, lifts, gardens and car parking and specifies additional costs like annual strata fees.
Off the plan contracts must also include a ‘sunset clause’ which defines the amount of time the developer has to complete the project. Make sure the time allowed is realistic, an 18 month sunset clause is common, so you should be wary of longer dates.
It’s important that the words of the contract match your understanding about what you will be getting for your money. Before signing or leaving your deposit, it’s a good idea to go over it with a legal professional who understands property law.
Make sure of your financing before you sign the contract
With up to two years between placing your deposit and settlement, it may be tempting to postpone organising the finance until after you’ve signed the contract, but this could result in you losing your deposit if finance cannot be arranged.
Many lenders provide long term loan approvals for off the plan purchases. Talk to us early about organising your finance for an off the plan purchase or any other property investments, to make sure you’ve got yourself covered!