If you're thinking about buying a house, then one of the choices in front of you is whether to purchase a property that's already been lived in or buy off the plan.
It can be easy to decide in favour of buying off the plan - after all, you're getting a brand new home that's never been lived in before. But there are a number of things to take into consideration before you decide this is what's right for you.
Being able to buy a completely new home and have input into design considerations isn't too shabby a benefit. Not only does it mean you'll have a modern home that can automatically accommodate the latest technology without expensive renovations, you also have the chance to suggest small customisations to the home for your own particular needs.
Not only that, but a number of states like Queensland and New South Wales offer a stamp duty concession on new homes and vacant land on which they intend to build on. In NSW, for example, the First Home - New Home scheme exempts first time buyers from duty on any new home valued up to $550,000, and grants a discount on it if the home is valued between $550,000 and $650,000.
One other advantage of buying off the plan is that you pay the current market price for a property that will be finished later when prices could be higher.
What’s the downside to buying off the plan?
Unfortunately, we don't have a crystal ball we can use to look into the future. There's no guarantee that market conditions will get more favourable for those with property. House prices could fall in between the signing of a contract and the completion of construction, and interest rates could rise, too.
Also potentially problematic is the fact that you're depending on the builder or developer, so you need to make sure they're honest, will complete the project on time and are financially stable. It would pay to do a bit of research on them before signing anything. Go on their website, look at what people are saying about them online and check the history of previous properties they've worked on.
You'll want to also go physically down to the building site and inspect it first hand. Look at the building plans, check out the area it is in and find out the market conditions for that particular part of town. You might even like to discuss your expectations with the builder or developer.
9 Things to consider when buying off-plan
If you are thinking of making an off-the-plan purchase, it pays to consider the following tips:
1. Research the Developer
Before you decide to buy an off-plan property, do some research on your prospective developer. You can do this via a simple Google search. Look at their property portfolio and the projects they have worked on. Bring up reviews/testimonials and get a feel for the quality of the build alongside their customer service. Ideally, the off the plan developer should have a great track record and an excellent reputation in the industry and local community.
2. Understand the Contract
Understand the type of contact you are entering into. Generally, there are two types of contracts when buying off-the-plan. The first is a one-part contract often used for buying apartments and townhouses. In this type of contract, you will typically pay a 10% deposit and the balance of the purchase at the completion of the building process. The second type of off-the-plan contract is known as the two-part contract. This is generally used for house and land packages and some townhouse developments. In this type of contract, you enter into a contract to purchase the land from the developer and a separate contract for the build.
An off-the-plan contract of sale must contain a clearly visible warning notice with the following information:
- Subject to the 10% limit, the seller and buyer may negotiate on the deposit amount to be paid.
- A substantial amount of time may pass between the buyer signing the contract and owning the property.
- The value of the property may also change during the time between the buyer signing the contract and owning the property.
It’s highly advised to seek legal advice before signing any agreements.
3. Inspect similar projects
Prospective buyers should ask the developer for evidence of past projects and inspect any existing similar-style houses in order to get a feel for the layout and build quality. You may even consider contacting people who have previously bought from them and checking for any negative reviews or media reports online.
4. Ask about customization options
Buying a home off the plan means buying a property that has not yet been built. In this build option, buyers are typically given a home design and layout to choose from along with a range of options provided by the developer or builder. Depending on your chosen developer, you may have more or less flexibility when it comes to design options to choose from. You will not be able to make decisions throughout the construction process as you do in a custom design and build, so it’s important to ask about customization options at the beginning when discussing your off-plan build with your developer.
5. Secure financing early
You may be able to organise home loan preapproval with a bank or mortgage lender in advance, or apply for a home loan as construction approaches completion. Getting a home loan for an off the plan property is a little different to buying an established property. Although banks and other lenders may offer conditional approval for off-the-plan purchases before construction commences, they won’t actually loan you any money until at least the property is built and they have performed a valuation of the finished product and re-evaluated your financial situation In most cases, you will have to pay 10% deposit up front, with the rest to be paid upon completion of the project. In any case, it can help to work with a mortgage broker for assistance.
6. Be prepared for delays
When buying off the plan, unexpected delays in construction can happen which could mean you are unable to move into the property when planned. Or, if you are a property investor, delays could mean you can’t rent the property out when you intend to, resulting in a loss of income. In either case, in the contract of sale, look for any ‘sunset clause’ to see how long the developer has to finish the project. You should have a contingency plan in place to anticipate potential issues before they arise. One of the most crucial aspects of contingency planning is setting aside a contingency fund to provide a financial cushion if there are any unexpected costs that arise during the construction process.
7. Consider the future market
One of the most important considerations when buying off-plan is to think about how changes in the market and other economic factors may impact the value of your home. Prior to buying an off-the-plan home, you should investigate:
- The current property market and predicted rise or falls
- The current conditions of the development market such as supply chain issues
- The location of where you want to build and what the average home value/rental yield is and what it is predicted to be in the future
It’s important to understand that your final property value could be lower than first estimated resulting in an effect on your LVR and interest rates. That’s why doing this initial research can prove invaluable down the line.
8. Review the floor plan and specifications
When buying an of-the-plan property, you must review the contract for sale to make sure you know exactly what you’re getting. This includes reviewing the floorplan of the property, the size and layout of the rooms, the overall size of the property including garage and yard space and the options you have in terms of colours and finishes.
9. Stay informed during construction
Changes often occur during an off-the-plan development, and the final property can be different to what the purchaser was originally promised. By law, developers must notify purchasers of any changes that were made in a ‘material particular’. Depending on your state or territory, you should be protected by builders’ warranty insurance while your property is being built, which means certain building faults that emerge within a certain timeframe must be repaired by the builder. Throughout construction, maintain regular communication with the developer or their representative to stay informed.
It’s quite common for off-the-plan builds to be a complex and lengthy process. Before signing a contract, it’s a great idea to seek advice from a property lawyer or conveyancer who is experienced in off-the-plan builds. They can assist you with going over the contract and answer any important questions you may have.
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