Is buying off the plan a potential money saver or a high stakes strategy?
Buying a yet-to-be completed property comes with both pluses and drawbacks. Be sure to weigh up both.
Get started with less
One of the big drawcards of buying off the plan is that you may only need a small down payment – often about 10% of the total sale price. That can make a purchase far more achievable especially for first home buyers. It also provides breathing space to save more of a deposit while the development is under construction.
You may even be able to secure the property with a deposit guarantee costing just a few hundred dollars, with the balance payable on completion of the building.
Potential stamp duty savings
The stamp duty savings on off the plan properties can be impressive.
Stamp duty is levied at the time of signing the contract of sale, and when it comes to off the plan purchases, duty will be assessed on the unimproved land value simply because the building isn’t yet in place.
Some states, like NSW, even offer stamp duty concessions for off the plan buyers – check with your state or territory revenue office.
Along with savings on duty, investors enjoy the full range of depreciation allowances associated with a brand new property.
Developers may require a minimum number of buyers to commit to a purchase before construction gets the green light. Where that’s the case, early-bird buyers may be offered sweeteners including discounts that won’t be available once the building is completed.
By getting in early you also have the advantage of selecting your preferred choice of colours and finishes from the developer’s palette.
But…a lot may be left to the imagination
For all the pluses, there are some noteworthy downsides to buying off the plan.
Perhaps the key risk is that you can’t physically walk in and around the property, experience the interior rooms, listen for road or other noise, and get a real feel for the outlook your property will have.
That makes it essential to ask some hard questions about acoustics, building materials – and even the builder’s success with past projects. Ultimately you could be making an expensive leap of faith.
Legal advice is a must
Sale contracts for off the plan properties can be complex – certainly more so than for existing dwellings. Be sure to have your solicitor review the contract before signing, and pay special note to any changes the developer is entitled to make once construction gets underway.
Watch the market
Even with an outstanding builder and a watertight contract, one thing buyers can’t control is how the market performs while the property is under construction.
If prices fall during the construction period you could be left paying more than the property is worth. This is especially important if you are likely to borrow a significant percentage of the property’s value – your ability to secure lending approval could be jeopardised.
It makes sense to speak to your Aussie broker for more ideas on how off the plan works – and whether it is the right choice for you.
Have you bought off the plan or are you thinking about it? Share your thoughts below!
If you enjoyed this article, please share it on Facebook, Twitter, LinkedIn and Google+ using the share buttons below.