What to consider when buying off the plan

Owning property is a coveted goal for many Australians, and buying off the plan is one way to make that dream a reality.

It could be considered a bit unconventional, and it does come with its own unique risks and rewards.

What does buying off the plan mean?

This is a term used when you buy a house or unit before the building work has been completed. You make your decisions to buy based on looking at the plans, and any artistic renderings of what the building will look like.

Advantages of buying off the plan

The most significant advantage of buying off the plan is an agreed-upon purchase price now, before the building has been completed, coupled with an often smaller deposit. If the market works in your favour, by the time you move in, the property is worth more than you bought it for.

You’ll also walk into a brand new property, which must have a six-star energy rating. You’ll be saving money on your energy bills from the get-go.

Another advantage is you have more time to save. While the building is being completed, you can make more savings for the final deposit.

Stamp duty

You can save some significant amounts of money on stamp duty through buying off the plan.

The stamp duty will only apply to the land, if the contract is signed before the premise is built.

In many states, you can get a discount on stamp duty for newly constructed properties.

Deposit

You will need to pay a deposit when you sign the contract of sale, but the balance will not need to be paid until construction is finished. This gives you time to save more money, and borrow less.

Plus, between signing the contract and the completion of the build, you can earn interest on your deposit.

Risks to consider when buying off the plan

With any big investment, there can be an element of risk involved. Knowing these risks beforehand can help you decide if this is the way you want to go when purchasing a property.

-Risk #1 – Unable to inspect the property

You can only view the floorplans and an artist’s impression of what the property will look like once completed. You cannot walk through the property and get a feel for size and space.

-Risk #2 – Completion dates

You might not know when the project will be completed. It could go longer than expected due to weather or supply chain issues. This could leave you renting for longer than you wanted, or potentially homeless while you wait for completion.

-Risk #3 Limited recourse during disputes

A developer enters into a major domestic building contract, and you buy from the developer. So you have no recourse with the builder, and must go through the developer.

-Risk #4 Property market volatility

If there is a drop in the value of the property from the time you signed the contract, you may struggle to get finance on a property that is now worth less than what you paid for it.

-Risk #5 The sunset clause

This is a clause in a contract that says a building must be completed by a specific date. If it isn’t, you are entitled to a full refund of your deposit. Some builders may delay construction if the property market has boomed. This way, they can refund your deposit and put the property back on the market, asking for more money.