Buying Off The Plan? Here’s What You Need To Know

Buying off the plan

Buying off the plan can be an appealing prospect for both homebuyers and investors, offering personalisation, potential savings, and a turnkey property. It’s important to note that property purchases may not always proceed as expected. Each purchase comes with its own set of advantages and disadvantages that should be carefully considered. Let’s delve into the common advantages and disadvantages of buying off the plan.

What does it mean to buy off the plan?

When you purchase a property that is either under construction or yet to be built, you are buying off the plan. Instead of viewing a completed house for sale, buyers purchase these properties based on building plans, designs, and information provided by the developer.

The advantages of buying off the plan

  1. Input into design: With new builds, buyers often have the opportunity to negotiate changes to the design of the home. This offers a touch of personalisation without the hassle of any remodelling or renovating that comes with existing homes.
  2. Builder’s guarantee: New properties usually offer a builder’s guarantee that protects against construction defects. The terms of these guarantees may vary by location, so carefully examine the contract.
  3. Time to save and earn interest: The time gap between signing the contract and settlement of the property allows buyers to save extra funds or even earn interest on their deposit before it’s due.
  4. Stamp duty savings: Stamp duty savings are available for off-plan purchases in some regions. These savings offer lower upfront costs for buyers and are a huge drawcard for buying off the plan.
  5. Tax benefits for investors: Buying off the plan can offer investors tax benefits that would not be possible with existing builds.
  6. First home buyer concessions: Depending on your state or territory, buying off the plan offers enticing concessions and grants for first home buyers. These incentives can significantly reduce the cost of purchasing a property, offering appealing motivation for many Australians trying to enter the property market.
  7. Potential for capital growth: During construction, a property can increase in value. In this scenario, buyers can realise capital gains of their property upon settlement.

The disadvantages of buying off the plan

  1. Uncertainty about the final product: Purchasing off the plan involves some degree of uncertainty as buyers cannot physically inspect the property before buying.
  2. Possible construction delays: Construction delays can lead to increased costs or inconveniences, such as the need to continue renting while awaiting property completion. This has become a particular issue since the COVID-19 pandemic that caused building supply shortages nationwide.
  3. Risks related to your deposit and government charges: It’s essential to properly consider the security of your deposit and potential government charges when buying off the plan.
  4. Builder bankruptcy: Since 2021 Australian building companies have been going into liquidation at alarming rates. If the builder faces bankruptcy before completing the project buyers can lose their deposit.
  5. Market volatility and valuation changes: Changes in market conditions, interest rates, and personal income can impact both financing options and property values.
  6. Lower resale value: The time gap between signing contracts and settlement allows the opportunity for the real estate market fluctuations. The property’s resale value may be affected, which could impact investment returns.
  7. Changing financial situations: Changes in personal income or financial conditions can influence final loan approval.
  8. Sunset clauses and developer actions: Sunset clauses can affect contract validity, and developers may seek to resell properties at higher prices if allowed by the contract.

Tips for buying off the plan

  • Choose a reputable builder with a track record of successful projects.
  • Carefully review the contract terms and seek legal advice to ensure clarity.
  • Plan your finances and consult a mortgage broker.
  • Stay informed about changes to the plan of subdivision and raise concerns promptly.
  • Be aware of the potential for delays and builder bankruptcy, and perform due diligence on the developer’s financial stability.
  • Assess the market and research the developer’s history before making a decision.

Purchasing off-plan properties can be a good way to save money, get a customised space, and potentially benefit financially. However, it also involves risks related to market fluctuations, uncertainty, and contractual obligations. To make informed decisions, buyers should do thorough research and seek professional advice.

*This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.

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