Buying off the plan? You need a plan!

calendar August 25 2016

Off the plan property - Verve
Buying off the plan means purchasing a property that is yet to be developed. Often it’s high rise apartments (like the many apartment buildings currently under construction in and around Newcastle CBD), but also can be small to medium density developments including over-55’s townhouse / villa projects.

Benefits of buying off the plan

Why do people choose to buy property off the plan? One of the key advantages of buying off the plan for a buyer is time.

After paying the deposit you usually have at least 12 months before settlement. This is often an attractive prospect for first home buyers and investors who may be able to increase savings and take advantage of possible property market price increases that may put them in a better position to secure funding.

Other possible benefits include:

  • Stamp duty savings when buying new vs established property – check your state website
  • Tax depreciation benefits – new properties will generally have greater deductions when leased
  • Repair and maintenance savings – a new property won’t attract the same costs as an old property.
  • Reduced power bills – new properties must meet stringent energy efficiency requirements under the Australian Building Code.
  • Potential changes – as the property is yet to be built some developers will allow you to make changes to fittings and fixtures to personalise to your taste.
  • For buyers in or near retirement the time factor may allow a window to sell their home and prepare to downsize.

As you can see there are many advantages to buying off the plan, however it is still essential to do your homework – plan and research. You need to make sure you can secure the required financing when it comes time to settle.

Overdevelopment in some areas has resulted in supply far outstripping demand which has led to downward pressure on prices. If the lender valuation on settlement is less than the original purchase price, the purchaser may no longer able to borrow the full amount required to meet their contracted purchase price. If unable to raise the additional funds they may not be able to settle. Oversupply has also resulted in lender concerns that their security in a property may diminish in value over time. As a result some lenders have ceased lending on properties within particular suburbs.

So research is critical

As with ANY investment due diligence is the key to mitigating risk including:

  • Location research – know the area! How many developments are planned? What is the population forecast plus present and future infrastructure plans?
  • Independent advice – seek advice from a range of professionals such as a valuation expert, real estate agent (not the project agent!), solicitor (to check all contract clauses) etc.
  • Knowledge of the developer – do they have a good track record? Do they deliver on time and use quality contractors? Have you inspected previous developments to see a finished product?

If you’re considering buying off the plan, consider your options, do your homework and go from there.

We have extensive experience with financing off the plan property purchases, contact us today to arrange a chat.

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