05Feb
Considering an "Off the Plan" Purchase?
It pays to be careful whenever buying real estate but perhaps you need to be extra cautious when "Buying off the Plan".
Firstly, what does it mean?
Buying a property off the plan simply means that the product is not finished and you are buying something the Seller is promising to provide.
How does it work?
It is used mostly for new subdivisions, apartment sales and new homes (via house and land packages). Once you decide the location is right, you will check out the plan. With a block of land, it is quite simple but imagining how a new apartment 15 stories in the air will look is challenging to most of us. Usually, the developer will have a display unit and models of the complex so you can get a better understanding of project. If you are buying a house and land package, you can visit display homes of the same or similar houses.
Once you have decided on the property, you sign a contract and pay the required deposit. It is then up to the developer to complete their part of the contract and complete the subdivision, build the house or apartment complex. This can take 1, 2 or more years.
Once the build is complete, you will be required to complete settlement by paying the balance of the purchase price and the title will be transferred into your name.
Beware of Potential Problems Before you Sign the Contract
Display homes and display units always look great and often show features not included in the standard property - which you will have to pay extra for. It's important to look beyond the new display apartment, house with the plush furnishings and ensure you understand what you are buying.
Research reputable developers who have a good track record of previous projects - both in quality and completion times. If you can, talk with people who have bought from these developers or builders and find out if they were happy with the process and the finished product.
If you feel uncomfortable or incapable of conducting this research consider appointing a Buyer's Agent to act on your behalf. This will cost you some money in the short term but you will have someone on your side to provide advice and assist with negotiations.
Ensure you have an understanding of the contract and what happens if things don't go according to plan:
- Your circumstances could change and you may not be able to proceed with the purchase.
- The developer may fail to complete the project
- The developer may go broke
- The property maybe worth significantly less at settlement than the price you agreed to.
- Are you able to resell the property prior to completion?
Who is Suited to Buying Off the Plan?
There are a few different types of buyer who can benefit from buying off the plan.
Investors
Investors are frequent Buyers of off the plan properties because they get a new property that they can maximise their depreciation benefits and access the negative gearing benefits on newly-built and off-the-plan properties. Wily investors can also spot an opportunity for capital growth - even before a property is built. They get to lock in today's prices even though they won't settle on the property for some time.
Foreign buyers
Under Australia's Foreign Investment rules, non resident buyers may not be permitted to purchase established properties and must buy new or off-the-plan properties.
These buyers will need to apply and get approval from the Foreign Investment Review Board (FIRB).
First home buyers
First home buyers are encouraged by Government to buy new properties through stamp duty savings and the First Home Owner Grant.
The savings from this can be substantial and the rules will vary from state to state.
These financial incentives act as an encouragement for first home buyers to get into the property market with an off-the-plan property.
Retirees and downsizers
Retirees and downsizers consider newly built homes and off the plan apartments for the lifestyle benefits they can offer.
A new home comes with modern amenities and often features they couldn't include in their original home. This can include lifts, a pool or a gym and the ability to be around with like minded people. New buildings are also easier to maintain and in the case of apartments, the majority of the maintenance is managed by specialist personnel.
This enables them to minimise annual costs whilst providing a better overall lifestyle.
Summary
Buying off the plan suits some people but not everyone. There are opportunities and potential pitfalls. Like everything, do your home work and don't extend beyond your level of knowledge or get professional assistance.
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