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Buying off the plan

Buying ‘off the plan’ simply means buying a property that hasn’t been built yet. It can be a more flexible and affordable option compared to buying existing property, with a number of benefits for both home owners and property investors.

  • You may be able to lock in a good price, as many developers offer lower prices and financial incentives before construction has begun
  • You can take advantage of capital growth, if your property increases in value as it’s being built
  • You can often secure a property by paying a 10% deposit to the developer and may not need to pay the balance until completion of the property, which can take up to 18 months. Remember if you are borrowing more than 80% of the property value, you will need Lenders’ Mortgage Insurance
  • In some cases, you can choose the location of your property within the development and customise it with a choice of floor plans and finishes
  • If you’re buying as an investor, you can claim depreciation, fixtures, fittings and get Stamp Duty exemptions in some states and territories
  • You’ll benefit from the builders’ guarantee, where structural or interior building faults that occur in the first seven years must be repaired by the builder.

There are a number of potential pitfalls to buying off the plan, so keep these things in mind when you’re considering whether to buy.

  • In some cases, the development doesn’t go ahead. You should get your deposit refunded, however you will miss out on the interest and capital gains you could have earned in this time
  • Check the contract carefully with your solicitor or conveyancer and look for unexpected costs or conditions that may affect your decision to buy. You may want to find out what will happen if the project is completed earlier or later than expected, whether the seller will claim responsibility for any defects and whether you can resell the property while it’s being built
  • The developer may offer a rental guarantee to entice investors, however these costs are often incorporated into the purchase price of the property and last for a limited time. When you’re calculating costs, look at rental rates of comparable properties to see if you can still afford the property once the rent returns to market value
  • Try to research the developer, builder, architect and financier to make sure you’re confident in their ability to complete the development to a high standard
  • Check the bylaws of the property to make sure they suit your needs (for example, if they allows pets) and check that estimated levies are a realistic amount to pay for the services promised
  • You may also like to call the local council to check zoning and future developments in the area, so your brand new view isn’t blocked by another building in six months time.
  • Because buying off the plan is popular with investors, there is a risk that the maintenance and capital value of the building may not be as good as if it were filled with owner-occupiers
  • If the property market falls or interest rates rise between the time you’ve bought the property to the time it’s completed, it may end up costing you more than you originally thought.

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