What are the risks of buying off-the-plan units?

By Gerv Tacadena

Buying off-the-plan units has some risks.

While buying off-the-plan is a viable option for buyers who have not saved that much for down payment, it remains a risky thing to do in a market riddled with declining house prices.

In a report on ABC News, mortgage broker Luke Camilleri said banks often undervalue off-the-plan properties way below their purchase prices. As a result, buyers are left with no choice but to shell out more than they expected just to complete their purchase.

"To someone who it's their biggest investment, or their biggest life purchase, to have someone on the other end of the phone saying, 'There's a problem, it doesn't stack up in the evaluation', you can imagine what runs through their minds and it's quite stressful," Camilleri said.

With this, off-the-plan buyers seem to face a double whammy of stricter lending standards and lower property valuations.

Buyers advocate Miriam Sandkuhler told ABC News that there are several other risks off-the-plan buyers have to deal with and one has to do with the developer.

"The level and experience of the developer are quite significant in determining whether or not the property is going to end up being good quality," she said.

She also agreed that securing financing for off-the-plan units can be a huge risk, given that property values are easily affected by the current condition of the market.

"If there's a downturn in the market, or if there's an oversupply of stock in the market when the property is finally built, that can substantially affect the value of that property and frequently those values come in under the purchase price of the contract," she said.

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