Finding a new property to purchase is exciting, and if you’ve been thinking about taking the plunge to buy off-the-plan, this can be a great option. Buying off the plan properties means buying a house or unit before it has been completed or fully built.
As common as this is, there are both benefits and potential pitfalls when purchasing off-the-plan. This article addresses the pros and cons of buying off-the-plan property and will help you make the right decision for you.
Suggested Reading: House Extension Cost Per m2 in Australia
Pros of buying a property off the plan
When you’ve started the process of buying a house in Australia, there are lots of options. For home buyers, buying an off-the-plan property offers several advantages over buying existing properties. These include;
Potential price discounts
If you want to buy an existing property, you may not get the same discounts as with an off-the-plan property. Most developers offer incentives when they launch a new project to encourage early buyers. It could be a discount on the purchase price or reduced interest rates for those who apply for their finance before construction starts.
These are usually present at the time of purchase, but you can also negotiate at an earlier stage in the process. If you desire to buy an off-the-plan property, it’s worth asking about any discounts that may be available. You may save some bucks on your purchase.
Ability to customise
If you’d like to alter the design of your new home, buying off-the-plan is ideal. Most developers will allow you some degree of customisation, for instance, paint colours and fixtures. You can also pick from different floor plans or produce your unique design from several ideas and rooms.
For example, if you need wheelchair access or extra storage space, you can include this in the original design when it’s still under construction. It’s quite difficult and costly to make changes once a property is built.
Time to save money
If you’re buying an existing property, you may find yourself competing with other buyers with a larger down payment on their new home. If you have not saved enough, it can leave you priced away from the property market. However, if you go for a brand-new property, you won’t need a large deposit.
You’ll only need to put a down payment of 10% when signing up for the contract and the closing amount at a later date when the construction is complete. Thus, even if you’re saving just $50 per week towards your cash deposit, it will take less than two years before you get enough money saved up for the contract price.
Potential capital growth/property value increase
Another benefit of buying an off-the-plan apartment is that it allows you to profit from the future property value. In a rising market, if you buy an apartment, in 10 or 15 years when you sell it, the property value could be worth significantly more than what you purchased it for today.
Besides, you also enjoy many tax benefits like depreciation on fittings and fixtures if you buy them for investment purposes.
When buying a home in Australia, you need to pay stamp duty, however, if you buy off the plan, you can apply for stamp duty concessions or exemption. So if you have plans to invest in real estate, buying off-the-plan might be a good option for you.
Lower maintenance costs
If you go for an off-the-plan property, the developer has already completed most of the work. Hence, you will have a lower maintenance cost than if you bought an already-built property. This is true when repairing or renovating. When you buy an existing property, you decide whether or not to renovate it and how much money to spend.
Cons of buying a property off the plan
Here are some of the biggest risks associated with buying off-the-plan properties:
Risk of changes to off-the-plan property development
When you buy off-the-plan, you’re paying for an incomplete development. Besides, there may be changes to the design or size of your investment property before construction begins. If the developer decides to alter the design of your apartment, you could end up with fewer bedrooms or living spaces than originally advertised.
Or, if they reduce the size of your apartment to squeeze more units onto their property, you may end up with less space than you anticipated. This can be frustrating if you already moved out and bought furniture to fit into your new home’s dimensions.
Risk of construction delays/extended construction time limit
If you buy property off the plan and the developers do not abide by the date outlined, it can cost you more than an existing property. This is because the bank will likely apply default insurance (LMI) to your loan, which can add tens of thousands of dollars to your mortgage repayment costs each year.
If you need an extension on your loan because of the affected contract’s validity, you’ll pay lenders’ mortgage insurance in large amounts. Hence, it can cause issues with financial institutions if they don’t want to extend their lending arrangements with you.
Risk of the development not being completed
The biggest risk with off-the-plan purchases is that the developer may not complete the property. You may lose your bucks and be left without anything. The second major risk is that property prices could decline before you can sell them. This is particularly likely if there is a market downturn during the construction period of your property.
Buying off-plan property means taking a gamble in the property market. You don’t know all of the details about your new home including property values until the developer completes it. So, what you pay now may not be worth as much when it comes time to sell it if the developer fails to complete it.
High body corporate fees/strata fees
Many off-the-plan buildings have body corporate fees. They can be high because they cover the costs of maintaining common areas and facilities such as lifts, gardens and swimming pools. These costs increase over time as your building gets older and when more residents join the body corporate. Hence, you should seek advice from a property lawyer before you go for a buy-off property.
Conclusion
With the help of our buying off the plan guide, we hope you can make a more informed decision on your loan. But feel free to check out our buying section for more guides and tips.
You should carefully consider the pros and cons of off-the-plan purchases. Also, do your due diligence before making a decision or any contract deposit. It may include research on the developer’s track record, careful contract review, and also seek legal advice.
This will let you know more about any of their past projects. If you can, visit previous projects and check for negative media reports to be sure you’re not dealing with a scammer.
