Property developers who build strata units and retirement homes often make the properties available for sale before they are finished, sometimes before construction has even begun. This is known as selling ‘off the plan’ and buyers can purchase these properties in advance. Although there are several advantages to buying off the plan, buyers should also make themselves aware of the potential drawbacks.
The Benefits of Buying Off the Plan
When a property is sold off the plan it is offered for sale at the current market price but the properties generally take a few years to build so the price is likely to rise with inflation.
Small Capital Outlay
A buyer is able to secure a property off the plan by putting down a small deposit, usually 10%, with the balance payable upon completion. This gives buyers time to arrange their finances and potentially be in a better financial position when the balance of the property is payable.
When a brand new property is purchased as an investment, buyers are generally able to claim depreciation on fixtures and fittings as a tax deduction.
When buying off the plan you can often make special requests regarding the colours, finishes and layouts as it is being built as new. Modern buildings may also include current lifestyle trends such as open plan living areas, a pool, gym and concierge services.
Stamp Duty Concessions
Several states offer stamp duty concessions to purchasers of new properties.
Like most new items, new buildings up to three storeys high have a warranty on the building structure which can offer peace of mind for buyers.
The Drawbacks of Buying Off the Plan
Lack of Certainty
Developers will go to great lengths to give buyers an indication of what the finished property will look like but factors such as the aspect, quality of the build and the quality of the fixtures and fittings can’t be certain. When signing the contract, the buyer should feel comfortable that their expectations may not be met exactly.
The proposed finish date for a building is generally an estimate and there can be delays.
On some large developments cash-flow can be an issue and there is a risk of developers going bankrupt making them unable to complete the build.
A bank will often provide pre-approval for off the plan builds but the bank will only offer unconditional approval, and provide the loan, if the property is acceptable in terms of value and quality on completion.
Problems Resolving Unexpected Issues
The property contract will outline how defects are to be amended if such a situation arises. The By Law on the property will also outline how factors such as common areas are to be handled. These contracts and laws should be carefully examined.
A brand new property will often have a sale price that reflects the newness of the property, just like a new car or a new product. There is also an element of the value reducing initially as the property becomes ‘second hand’ and not new.
Be sure to speak to a mortgage broker or financial planner before buying off the plan.
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