Buying off the plan can offer attractive incentives for both investors and owner-occupiers. It’s an opportunity to secure a property before construction is complete, often with potential financial and lifestyle benefits.
Buyers put down a deposit (usually 10 per cent) for a house or apartment based on site plans. These commitments to buy help developers fund construction, with full payment due only on completion. The lure for buyers is a potential capital gain if values rise during this period, but that can be a big ‘if’.
Having buyers lined up helps developers secure finance. And on the flipside, buyers who commit early can lock in a property at current market rates, without the need to settle until construction is finished, which can be months or even years later. The hope is that the property may be worth more by the time it’s completed and payment is due. Most contracts only require a 10 per cent deposit, also allowing buyers additional time to save the 20 per cent needed to avoid Lenders Mortgage Insurance on settlement.
When buying off the plan, a developer should provide buyers with a contract that outlines the details of the purchase, the completion date, and the deadline for when a decision must be made as to whether the development will go ahead. That decision usually hinges on whether sufficient finance has been secured. If the developer pulls the pin or passes the decision deadline, buyers should be entitled to a refund of their deposit under a ‘sunset clause’, although this can depend on the conditions of the sale contract. It pays to read contract terms carefully and, if required, seek financial or legal advice.
Unlike traditional property purchases with relatively short windows to arrange finance, you’ll have at least 12 months, if not longer, to settle. Savvy buyers take advantage of this extra time to save their pennies and reduce their borrowings.
If you dream of a new home but have nightmares at the thought of building one, an off-the-plan purchase may be the perfect compromise. Although you won’t get to design everything as you would with a custom-built home, most off-the-plan developments allow some customisation of finishes and fixtures.
Various incentives are still being offered to first-home buyers, which may add to the appeal of buying off the plan.
Concessions vary across Australia, so visit your State or Territory website (or simply talk to us) for the latest information on grants and exemptions. You can also research your eligibility for stamp duty concessions on new properties using our Stamp Duty Calculator.
Off-the-plan apartments are often pitched heavily at investors due to the tax benefits that come with depreciation on new properties and rental guarantees. Tax savings will depend on your individual circumstances, but generally, the newer the property, the higher the depreciation allowance for the building and fixtures.
Investors may also be offered attractive rental guarantees for a limited period. Make sure you do your homework on rental returns for similar properties in the area before accepting the developer’s terms.
Be wary of over-inflated rental guarantees. Builders will sometimes promise a high-rent yield to lure investors, build the cost into the property price, and then subsidise any gap themselves for a short period. When the rental guarantee expires, you may find the actual market rent falls well short of what you originally pocketed. If investing, make sure you have the option to manage the property yourself or with your chosen property manager from the time you take possession.
Many buyers get swept up in a wave of rising property prices when they hand over their deposit in exchange for a floor plan. Historically, property is a consistent long-term performer, but property prices can plateau and even decline at the mercy of economic factors.
Buyers also need to be wary of oversupply, which may devalue their property.
Make sure you consider the bigger picture when buying off the plan. Research how many other developments are planned in the area and whether any increase in apartment numbers is justified by new or improved infrastructure, such as transport corridors, business precincts, universities, or hospitals.
Make sure you purchase from a reputable builder and take the time to research their previous projects. Do they use quality contractors? Do they deliver projects on time? Make a point of visiting some of their projects, so you can assess the finished product first-hand.
Whatever your circumstances, we will find the deal that’s right for you.
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