Property purchases off-the-plan are becoming an increasingly popular option, and with a recent boom in building approvals, there’s opportunity aplenty to buy now and pay later.
July approvals for new apartments showed an increase of 130% since January 2009, and were nearly double the June figures for apartments in buildings of four or more stories. With strong supply and low interest rates, the promise of a sparkling, unused apartment within a shiny new building is bound to inspire plenty of activity in the coming months. But there is potential for both positives and pitfalls when purchasing off-the-plan.
“The biggest benefit is the stamp duty benefit,” says Anne Marie Gasbarro, Partner in the Property and Conveyancing division of Melbourne law firm, McKean Park Lawyers.
“You pay duty based on the price you pay for the property less the cost of the works that are yet to be completed,” she explains. “Obviously the earlier you buy into such developments, the greater [duty] benefit you’re going to have.”
Stamp duty calculations are State specific so it’s best to get proper legal advice about this aspect and how it would apply to a purchase in your state.
In a rising market, you could have capital gains even before you take possession, and if the property is for an investment, depreciation on the new building and fittings may translate to tax deductions.
But there are risks too, such as market prices falling in the period between signing the purchase contract and taking possession, or the builder not finishing the construction due to financial problems.
“I think the biggest risk for most people is that they’re buying something they haven’t seen,” says Gasbarro. “Most of us are not good at reading plans, and it’s difficult to visualise what it is that you’re getting at the end.”
But with increased risk, comes potential for increased returns, and with proper advice and due diligence you can enter an off-the-plan contract with confidence. Use our top tips as a guide and enjoy watching your home take shape.
Top six tips for buying off-the-plan
- Inspect the property particulars — Investigate the bylaws, restrictions and rules of the property – such as those relating to pets, parking and access entitlements to common properties. Look into the arrangements for the management and caretaking for the building, as well as your financial obligations towards a sinking fund and levies. Remember that as buildings age, generally maintenance costs and the need for capital expenditure increases.
- Comb your contract — Get proper legal advice on your purchase contract and examine it for things like sunrise and sunset clauses, penalties for withdrawing, whether GST is payable, and whether the builder can vary the unit area from the original floor plan – and by how much. Look for appropriate insurance cover against the risk of the building not being completed.
- Check out the developer — Look carefully at work already completed by the builder, seek references from previous purchasers and ask about the quality of workmanship and adherence to construction schedules.
- Pay the right price — Do some thorough research on the value of the property. Inspect nearby similar apartments, have a look at price trends in the area and consider the proximity to public amenities like transport and schools.
- Have finance at the ready — Put a plan in place to ensure that you can pay early if construction is completed ahead of schedule.
- Get inside information — Look carefully at the plans for the internal features of the property, such as fittings and fixtures, ceiling height and aspect. Find out if you can customise some of these features so that they’re more in line with your style. Getting in early to secure one of the first apartments will give you more choice.