3 Things To Consider When Buying Property Off The Plan

Things To Consider When Buying Property Off The Plan

Considering buying a property off the plan? Make sure you invest careful thought and research into making sure it’s a plan that works for you before  you invest.

The rise in popularity of apartment living in recent years is an indication of the changing ways in which Australians are choosing to live. Many – in particular, young professionals and those looking to retire and downsize – are trading the suburban block for the lifestyle and convenience of inner-city apartment living.

Things To Consider When Buying Property Off The Plan

Things To Consider When Buying Property Off The Plan

Capitalising on this shift is the ‘buy off the plan’ scheme, where buyers are able to purchase apartments many months before they’re built. Some are attracted by tax benefits, government incentives and significant capital gains potential. Others are drawn to the prospect of living in a brand new place with the flexibility to have a say on the floor plan, finishes, design features and fixtures.

As with any major investment, there are pros and cons to weigh up, but if you are considering buying off the plan, you can help minimise any potential risk by understanding the market and exactly what you’re buying.


Do your homework

First-time homebuyers Emma Keating and Dan Jansson, both 31, decided to buy off the plan rather than an existing property after thoroughly assessing their financial and lifestyle objectives. Fifteen months after they signed the contract, they moved into a brand new apartment only four kilometres from Sydney’s CBD.

“Being close to the city is important to us, so moving to the outer suburbs wasn’t an option,” says Emma. “That really limited what we could get with our budget, especially as we didn’t want to buy something that we needed to fix up as well.”

The couple considered some old warehouses and empty lots in their area, which were being redeveloped into residential housing. After narrowing their search to a select few, they did as much research as possible before settling on their favourite property.

“We did a lot of research online, such as finding out who the builders were, what their reputation was, how long they had been in business and how many developments they had completed,” says Dan. “We also went to look at their previous developments, just so we could get a sense of the builder’s workmanship and attention to detail. Because we were essentially buying a property unseen, looking at their previous work was a good gauge of what we could expect.”

In addition to research on the builder and developer, it is useful to find out from the local council if there are any issues with the development plans. Any dispute between council and developer could mean delays to the completion date or changes to the floor plan that you might not like.


Know The Market

Developers often cite ‘instant equity’ as the primary benefit of buying off the plan. Equity is the difference between what you paid for a property and what it is worth. Buying off the plan, according to developers, allows buyers to pay current market prices for a property that. will, hopefully, be worth more when it’s completed in the near future. While this may prove to be the case when the property market is strong, bear in mind there are no guarantees that property prices will always rise – as recent economic trends show.

This was something that Peter Marie, 53, who purchased a high-rise apartment off the plan three years ago, knows all too well. Peter wanted to add an investment property to his portfolio and was attracted by a development’s high capital gains potential and rental guarantee. “What I didn’t realise was that the developer had inflated the rental guarantee to justify the higher property price,” says Peter. “After the guarantee ended, I discovered the rental market was just not at that level and the return on my investment was lower than if I had bought an existing property and rented it out.” Peter bought in an area oversupplied with high-rise apartments, so the end valuation was also lower than he had anticipated.

“I reckon I’ve broken even on the investment,” says Peter, “but that’s before taking into consideration the three years of lost potential earnings had I invested in something else instead. “I wish I had done more research on the state of the property market and the rental market before deciding on my purchase.”

Seek Advice

Stories like Peter’s are not uncommon and highlight the value that professional advice could have added. The internet should be your first resource when considering buying property off the plan. Once you have an idea of what you are looking for, make an appointment to speak with a financial adviser, property market expert or solicitor for their advice.

Doing all the hard work up front will place you in a better position to realise your property investment goals.


Things to consider when buying property off the plan:

  • For settlements greater than six months, be aware that most lenders will not offer unconditional loan approvals.
  • Research the location, developer and market conditions.
  • Speak with an experienced mortgage broker who knows multiple bank policies, as many banks have unique policies of what is and what isn’t acceptable security regarding high-density apartments.
  • Get your finance pre-approved before you do anything. This is normally a free service.
  • Have a conveyancer or solicitor look over the Section 32 Vendor’s Statement before you sign anything.
  • Consider the duration to settlement and the potential impact if the future value of the property falls below your purchase price. Generally, properties with shorter settlement terms have lower exposures to valuation discrepancies.
  • Get a solicitor who specialises in off-plan contracts
  • Ask what happens if the value falls after exchange
  • Ask what happens if the developer goes bust
  • Visit the site fortnightly at least
  • Get a snagging survey before moving in