Buying off plan: a matter of risk, or reward?
There’s no doubt that of the many paths Australians are taking to get ‘into the market’, buying off-the-plan is one of the most popular. Such developments offer enticing renders of exciting, polished looking properties, often in great locations, at a price you can’t ignore… making it a no brainer, right? Not so fast…
Nothing better illustrates the notion of ‘selling the dream’ than the marketing for off-the-plan developments. Buyers enter a contractual agreement to purchase a property, sometimes long before the due completion date, enabling them to fix a price and a timeframe to save the balance of the purchase price, and hopefully get a jump-start into the market.
And while there’s no doubt that in an ideal world it would position you to reap a whirlwind of appreciation following projection completion, there is no better case of caveat emptor – or buyer beware – than when buying anything off-the-plan.
Let’s look at the benefits first, that often make off-the-plan developments so compelling…
- If you’re early enough to the party, you can get first pick on the best floorplans and views (in an apartment development), or the best-located lot (in new estates). These are the properties that tend to appreciate the most relative to initial outlay.
- You can lock in a price with time to save before settlement, giving you a head start on any capitalisation strategy and allowing your deposit to grow that little bit bigger over the timespan of the project.
- There can be real financial gains for a buyer, including tax depreciation benefits and government incentives. First home buyers enjoy stamp-duty concessions and even exemptions, and depending on the property price may be eligible for government grants.
However, despite the above, there are a number of things to be aware of before signing the dotted line:
- Completion dates are only ever estimates, and delays can cost you. Contracts hold special conditions that specify the conditions under which developers can change the product during construction, or even walk away altogether before completion.
- Be cautious about ‘sunset date’ clauses. They provide a maximum time limit for completion. If the project is not completed by within the time frame, buyers can get their deposits returned – but will have lost valuable time in the market.
- Properties may end up smaller than you were led to believe, or may not use the materials and finishes originally promoted, leaving you with difficult decisions to make about whether to walk away, contest the outcomes, or argue for concessions.
- Be sure you’ve researched your area and are across what else may be getting built nearby. Depreciation is a genuine risk, and you can be left with a property valued lower than what you paid for.
Is it ever a good option?
Buying off-the-plan can definitely work in your favour, with both investors and first home buyers able to make real gains if they’ve done their research and ensured their contracts don’t contain any nasty surprises.
Also, consider the following questions: Has the developer received consent for the plans? If not, the finished product will likely look quite different to what you’ve been sold. How is the area performing, in rental yield and/or capital growth? If your build is delayed, your expected gains may evaporate. What is the developer’s reputation like? Do a bit of detective work on previous projects, and get a sense of the finished quality of their work.
Buying off-the-plan can be exciting and rewarding, but don’t let the dream blind you to the realities – nor the possible pitfalls – of any such arrangement. Always seek professional advice, so you can minimise your exposure to risk, and reap the best possible outcome.