Buying property 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.
What are the advantages 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.
Buying off the plan risks
Like any property purchase, buying off the plan does come with some risks:
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.
The suburb profile: Consider factors like median property prices, capital growth, and rental yields in the area. Take a look at our suburb profiles to see information on suburbs in Melbourne and Sydney.
Considering buying off the plan? Be the first to know about off-the-plan developments in your area by signing up to the Upside Buyer Advantage – completely free.