Buying off the plan means contractually agreeing to buy a property before it’s built or while it’s being built. This means you can view the design and the building plans but not the completed property until construction is finished.
Usually, the buyer pays a deposit to secure an off-the-plan property with the balance payable upon settlement. The date for completing the contract is typically not until the building is finished.
For both owner-occupiers and investors, buying off-the-plan apartments or houses comes with opportunities and risks, so it’s important to understand the details before taking the plunge. We’ve put together this guide to help you get your head wrapped around off-the-plan properties.
Pros and cons of buying off the plan
Many buyers consider purchasing off the plan to be a smart speculative buying decision because, theoretically, the property should have grown in value by the time construction is finished.
Some of the major potential advantages include: Securing a good price: If the value of the property does increase by the time construction is finished, you will essentially make an instant profit on a brand-new property.
Tax benefits: The tax benefits of buying an investment property are generally greatest when the property is brand new because you may be able to claim a higher depreciation in the value of the property.
Stamp duty deferral: If you’re an owner-occupier buying off the plan, stamp duty can be deferred for up to 12 months, which gives you extra time to save.
Additional time: Having extra time before your property is ready to occupy gives you more leeway in getting your documentation and affairs in order.
However, like any property purchase, buying off the plan does come with some risks. The potential cons include: Changes to building plans: If the terms of your contract stipulate that changes to the building plan can be made during construction, the finished apartment or complex may differ to the original plan.
Changes to the market: Depending on market fluctuations, the value of your property once it’s completed could be lower than predicted.
Changes to interior details: Details like fixtures and fittings could end up being different than what was in the demonstration display.
Funding the purchase: If you need to sell your property to fund the balance payable, you’ll need to sell it in time to access the funds to settle.
Interest rate hikes: Interest rates could increase before you settle on the property, increasing the costs of holding the property.
What to consider when buying an off-the-plan property
As is the case for buying any property, it’s important to research to ensure that you’re comfortable with financing, return, growth potential, tax implications, etc. Here are some of the key things to consider:
The developer’s reputation: Do some online research to find out who the developer is, what other developments they have done, and whether they have a good reputation.
The development approval: Before you buy, make sure that the Development Approval has been granted by your local counsel or state government.
The current status of the development: If you can, visit the development to assess what state it is in currently, so you can understand how realistic the terms set out by the developer are.
The contract: It’s best to seek legal advice to make sure the terms of the contract of sale are reasonable and offer you adequate protection.
Reviewing an off-the-plan property contract
Because an off-the-plan property hasn’t been built yet or is in the process of being built, it’s especially critical to review the contract carefully so you know what you’re buying. It’s a good idea to seek legal advice so you’re clear on the terms of the purchase.
Make sure you understand the conditions of the contract, including the benefits and restrictions it contains. You should also understand what you’ll be liable for if you withdraw from the contract.
When reviewing an off-the-plan contract, consider the following:
- Can you make changes to the property, such as the kitchen or bathroom finishes?
- Can you choose your own appliances or materials?
- Can you visit the site while the property is being built?
- Will you still have access to finance if construction is finished earlier or later than expected?
- What happens if construction is delayed?
- Can you sell the property while it’s being built (before settlement)?
- Can the developer make changes to the building design with your consent?
Paying stamp duty on off-the-plan property
The rules for paying stamp duty on off-the-plan property differs from state to state. For example, if you buy off-the-plan property in Sydney or NSW with the intention of living in it, you can defer paying your stamp duty for up to 12 months after you sign the agreement, or until the property is completed or handed over, whichever comes first.
In Victoria, a stamp duty concession applies to some off-the-plan properties. The concession is calculated based on the property contract price minus construction or refurbishment costs incurred on or after the contract date. Find out if you’re eligible for an off-the-plan stamp duty concession at the Victoria State Revenue Office website.
If you’re thinking about buying an off-the-plan property, get in touch with your state revenue office to find out what stamp duty rules apply to you.
Considering buying off the plan? Take a look at our suburb profiles to see information on suburbs around Australia.