Guide to Purchase Off-the-plan
What exactly is purchasing off-the-plan? Purchasing a property off-the-plan involves purchasing a property that has not yet been completed or is currently under development. You make your purchase choice on the construction plans and designs rather than the completed project.
Many individuals, both homeowners and investors, regard purchasing off the plan as a wonderful option to get a brand new house. However, similarly to any investment, there are advantages and disadvantages to consider when purchasing off the plan. Therefore, if you are considering about purchasing off-the-plan property right now, it is better you have a better understanding of the benefits and risks.
Benefits
- Purchasing price reduction. If you act quickly enough, especially before construction starts, the developer may grant you a concession on the purchase price. There are even some amazing incentives like rebates, rental guarantee, furniture package, and interest on deposit.
- Contribution to design. You might be able to negotiate adjustments to the property’s interior design. Consult the developer to see what’s feasible.
- Builder’s warranty. A builder’s guarantee is usually included with new homes. The way the guarantee works and what it covers may change based on the state or territory where the property is situated, so double-check to see whether one is obtainable and how it could benefit you.
- Leasing benefits. New homes are often appealing to tenants, because of its freshness and modern amenities, you can normally charge a higher rent. There are also several depreciation advantages.
- Allow you more time to start saving more money for the new home. Upon purchasing the off-the-plan property, you may be required to pay a deposit when signing the contract of sale. The remaining amount of the property’s purchase price is paid upon settlement (when construction is finished). This allows you to save money from the time you sign the contract until settlement, which you may then use towards lowering the amount you need to borrow, stamp duty, or other upfront charges.
- Possibility of earning interest on your deposit. Your deposit may be retained in a trust account until completion, and you may receive interest on the cash deposit you paid until settlement in some cases. Alternatively, the developer might agree to even let you secure the purchase with a bank deposit guarantee. This may allow you to continue collecting interest on your money while your house is being constructed. Depending on the development, different restrictions may apply, so learn more about how it works for the property you’re interested in.
- Savings on stamp duty. Because you are purchasing a new home, you may be eligible to save on stamp duty in several states and territories. This varies based on the state or region in which the property is located, whether you are acquiring a residence or an investment property, and the terms of the contract. Check with your conveyancer or solicitor to determine the amount of stamp duty due, whether any discounts are available, and when it must be paid.
- Investors can profit from tax breaks. If you’re buying for investment purposes, you might be able to get tax breaks if you purchase off-the-plan. Because tax laws are intricate, consult with your accountant or a qualified tax agent.
- Concessions for first-time house buyers. You may be eligible for the First House Owner Grant if you are purchasing your first home (FHOG). You don’t have to purchase off the plan to be eligible, but they’re worth considering while analyzing your alternatives. The rules and award amounts differ by state or territory, so double-check your eligibility.
- Capital growth. During the construction process, the property’s worth has the potential to rise.
Risks
- It is possible that your expectations will not be met. As you don’t have an opportunity to book an inspection on the property before you buy it when you buy off-the-plan, so it may come out differently than you imagined.
- Construction delays are possible. If the construction is not done on schedule, there may be additional expenditures or inconvenience. For instance, if you are buying for owner occupy, then you will have to rent a house for living until the property is ready.
- And, two or more years later, the price you agreed to pay on the contract may not be the official final “value.” You still have to settle, which frequently means you either have to make up the difference or try to sell before settlement. In any case, you may end up bearing the loss as a result of the market shift between when you initially purchased the property and when it was fully completed.
- You might lose your deposit due to builder’s failure. If the developer declares bankruptcy before finishing the project, you may not be refunded your money. This is determined by the conditions of your contract.
- Interest rate or income fluctuations. Higher interest rates or changes in your income may have an impact on how much you can borrow or the repayments you can afford.
- Property value decrease. Your lender will only appraise the property upon completion, which may be less than you anticipated. This, in consequence, may have an impact on your loan to value ratio (LVR), which is the amount you need to borrow assessed as a percentage of the property’s appraisal by your lender.
- Lower than projected resale value. If you are purchasing the property as an investment, be aware that market swings and other housing developments may impact its resale value throughout the time it takes to complete the development.
- Your financial condition and/or lending regulations may alter in between time you sign the contract and the time the construction is completed. If your personal income or the overall economic situation shift before your final application is granted, you may not be able to borrow the amount you were pre-approved for, leaving you with a gap.
With awareness of both the pros and cons, are you ready to buy the off-the-plan properties? Not yet! Here is your guide – “Must Do” when you are intended to purchase the new homes.
- It is critical to obtain legal counsel before signing a contract, therefore have your legal representative analyze the deal before signing. They will not only ensure that the builder or developer is committing to constructing what you agreed to orally throughout the purchasing off the plan process, but they will also double-check the finer aspects. The contract of one off the plan buyer, where the construction blueprints did not match what the customer thought they were obtaining, is an example of a lawyer’s critical function. In reality, what was intended to be a 20-square-metre outdoor space did not appear at all in the drawings.
- Saving a deposit while purchasing a off-the-plan home. The key concern is, how can you save enough money for the 10% deposit plus any upfront charges and fees? Most lenders will not allow you to borrow the deposit amount as part of a house loan. You’ll have to earn the money on your own.
- Investigate the developer, builder, and architect to ensure they have an excellent track record. Always verify with the developer to see whether they provide any of the above-mentioned perks. Determine the procedure for correcting any faults discovered once the constructions built. Find out what happens if the developer goes bankrupt before the project is completed.
References:
“Buying off the plan: pros and cons and how to pay your deposit” by anz.com.au
“A beginner’s guide to buying off the plan” by Andrew Mirams