Off the plan

calendar June 6 2018

Planning to buy off the plan?

When we think ‘off the plan’ most people will immediately assume extensive high rise apartments under construction across major Australian cities. However it’s also common for smaller medium density developments to be sold off the plan, including many over 55s townhouse/villa projects.

Why buy off the plan?

For a developer, selling off the plan locks in a pre-determined level of sales allowing them to secure finance from a lender and the project to proceed.

For the buyer one of the key advantages of purchasing off the plan 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 (check with your accountant)

  • 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.

    Over 55s developments sold off the plan are often a good example of a project aimed at a demographic with high demand for the development type.

    Buyer beware

    Buying off the plan may provide an entry into your ideal new property, however there have recently been cases where buyers have found they are unable to settle on a property as they have been unable to secure the required financing for settlement.

    Two main reasons for this are:

    1. Significant overdevelopment in some areas has resulted in supply far outstripping demand. In turn this has led to downward pressure on prices. If the lender valuation on settlement is less than the original purchase price the purchaser may find they can no longer 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.

    2. Oversupply in some areas 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 in lending on properties within particular suburbs.

    Oversupply tends to be isolated to high density inner city areas but it should be noted not all developments within an area will suffer the same fate. It is by no means an ‘across the board’ issue.

    In general, property is a consistent long term performer but property prices can plateau or even decrease due to economic factors AND man-made issues such as oversupply. The answer?…

    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 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?
  • Ultimately the cost of professional advice before signed up for an off the plan purchase is a small price to pay to help secure your wealth later in life.

    It is important that you call the office to determine if the location you are interested in making a purchase is currently in favour by lenders for borrowing purposes.

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