How to buy property off-the-plan
Buying property off-the-plan is sometimes viewed as risky investment strategy, but several buyers have used this purchasing process to get ahead of the market. So how does buying off-the-plan work – and what do you need to do before signing on the dotted line?
Buying off-the-plan is simply purchasing a property that is yet to be built. Buyers will purchase site-unseen, and agree on an apartment based on an architectural plan.
Off-the-plan properties can be in the form of apartment blocks or town houses. Often the developer will have a demonstration property or showroom for prospective buyers to inspect, but it is likely that each property plan will vary from the next one, at least to some degree.
How does buying off-the-plan property work?
The process of an off-the-plan property purchase can differ between developments. Some developers reserve the right to alter the design of a property without having to seek approval from the buyer. Others may expect buyers to contribute additional funds if construction costs fluctuate. For these reasons, an off-the-plan property contract is very different to a standard contract of sale.
Upon signing the contract of sale, the deposit amount is due. A deposit for an off-the-plan property is typically, and cannot exceed, 10 per cent of the purchase price. The deposit is held in a trust account until settlement. The remainder of the purchase price is due upon completion of the development.
How long does the process take?
After the contracts are signed, there is a cooling-off period, which varies in duration from state to state but is generally between two and five business days. Within this time frame, home buyers have the option to pull out of the sale while only forfeiting a small portion of their deposit.
Construction time varies dramatically across different developments, but the project can generally take a couple of years to complete. The developer will have this information available to you, and should keep you updated along the way.
Once construction has completed, your loan is finalised and you will proceed to settlement of your new apartment.
Benefits of buying off-the-plan
• First home buyers are often short on cash, and in turn find it difficult to have funds ready for a short-term settlement. Purchasing off-the-plan buys time as there is a much longer settlement term
• The maximum deposit for off-the-plan purchases is 10 per cent, with the balance due on settlement. This gives buyers time to shop around for the right mortgage
• In some cases, buyers may be entitled to any interest that the deposit has accumulated at the time of settlement
• When signing a contract for an off-the-plan property, you are agreeing to current market prices. More often than not, the market will have grown by the date of completion, creating instant capital growth
• Off-the-plan properties are customisable. From selecting the position of the apartment, to the appliances and finishes, each buyer has a say in the end result of their individual apartment
• Brand-new properties in Australia come with a seven-year builders’ guarantee for structural or interior building faults
Risks of buying off-the-plan
• Completion is not guaranteed. There is a chance that the project could fall through in the case that the developer is forced to file for bankruptcy
• The end result can often be different to the original plan. Developers reserve the right to make changes where necessary, as unexpected issues may arise during the building of the development
• There is a chance that the market could fall, meaning you will end up paying above market price upon completion of your off-the-plan property. This can have serious implications when you’re seeking to complete your purchase. If the bank valuation comes in lower than you anticipated, you may struggle to get finance and face delays at settlement
• It is difficult to measure the resale value of off-the-plan properties – particularly if the area is experiencing a surge in development. When you’re buying off-the-plan for investment purposes, it’s important to look at how the development (and any others in the pipeline) could affect the area’s property values
• Risk of disappointment. As you are buying site-unseen, the finished product may not match your expectations
• Development time frames can continually be delayed. This is completely within the developer’s right
Tips for buying off-the-plan
• Do your due diligence. Research the median price growth of apartments in the area you are looking to invest, as well as vacancy rates, rents, employment statistics, demographics and growth drivers
• Research the development team. Read up on information on the developer’s previous projects and buyers’ satisfaction post-completion date
• Get independent legal advice before you sign any contracts
• Visit the property site. Although the construction may not have commenced, it is important to get a feel for the area and location of the site. It also makes it easier to visualise the property once you have been to the site
• Visit the showroom. Get a feel for what the apartment will be like – it is difficult to do this by simply looking at a plan. Visiting the show room will allow you to see what the finishes will be like – if it feels high quality, if it feels spacious or cramped, if the layout flows well and much more
• Get in early so that you have more options to choose from. Once you have visited the construction site, you will have more of an idea of which streets are busier and which direction will offer a better view. Use this knowledge to choose the best apartment from the options available
Questions to ask yourself when buying an off-the-plan apartment
• Does the display model have a good feel to it?
• Does it feel spacious?
• Are the finishes high quality?
• Is there enough storage available?
• Should I spend extra for top-of-the-range appliances?
• Which direction will my apartment face? Is this ideal?
• Will the apartment get a lot of sunlight?
• What amenities are close to the apartment site?
• Is the space functional?
• Are the bedrooms reasonably sized? What furniture can they accommodate?
Questions to ask the developer when buying off-the-plan
• Is the layout of my off-the-plan apartment subject to change?
• When is the expected completion date? Can this vary? If so, how much can it vary?
• In the unfortunate event that the development can no longer go ahead, what is the process of getting my deposit back?
• Am I entitled to interest earned on my deposit?
• Which stage of development is my apartment in?
• How much should I expect to pay in strata fees?
• What is the building’s policy on pets?
• What aspects of the apartment are customisable?
