Buying off the plan can be a great way to purchase a beautiful brand-new property as a home or investment. With that said, there are clear and present risks involved. The property may not end up as you imagined, you may struggle to get finance and lose your deposit and the developer could even run out of money before they finish the project.
To minimise your exposure to the risks and ensure you buy a property that you love, follow our nine top tips for buying off the plan.
- Make sure an off-the-plan purchase is right for you
Buying off the plan isn’t for everyone, but it’s often a great idea for:
- First home buyers who may be eligible for grants when buying a new property.
- Property investors because an off the plan unit may be perfect as a low maintenance, high yielding investment.
- Foreign citizens who may only be able to buy new property.
- Lock and leavers who want a low maintenance home in a good location.
Before you decide to buy off the plan make sure you understand what’s involved and have considered the alternatives.
- Sort your finance
If you sign a contract to purchase a property off the plan, then are unable to secure a home loan before settlement date, you could lose your deposit.
To make sure that doesn’t happen, maintain close contact with your lender and seek home loan pre-approval before the development is finished. Try to enter the six months before settlement date debt free, with plenty of savings in the bank so that your lender is more likely to approve your home loan.
- Apply for First Home Owner grants
Every state except for the ACT offers eligible first home buyers a grant of between $10,000 and $20,000 to go toward their property purchase. In most cases to be eligible you must either build your home or purchase a brand-new property directly off the developer. Check out our handy guide to First Home Owner grants to find out how to apply.
- Understand the contract and get expert advice
Before buying off the plan you should have a specialist conveyancer look over the sales contract to make sure everything is above board and that you completely understand what you’re getting into.
One thing to make sure is included in your contract is a sunset clause that requires the seller to finish the project before a set date or within a certain timeframe. If they don’t complete the project in the agreed upon timeframe, the clause entitles you to walk away from the contract with your deposit.
Other details in the contract that you should clarify include:
- What happens to your deposit if the build doesn’t go ahead.
- If you can change or select fittings, finishes and appliances.
- Whether you can visit during construction.
- What your rights are if construction is delayed or designs are altered.
If you’re concerned about the contract or want changes made before you commit, don’t be afraid to ask the developer to remedy the issue.
- Understand the market
Before you buy off the plan you need to understand the market in the area where you’re buying. Take the time to do your research and find out:
- Whether prices are trending upward or downward in the area.
- If the type of property you’re buying is oversupplied in the suburb, and if upcoming developments will increase supply. If this is the case capital growth and rental demand can slow or reverse.
- What rental vacancy rates and yields are for similar properties nearby.
- Details of planned residential, commercial or infrastructure developments nearby.
- How much similar properties in the area are selling for.
Speak to a local buyer’s agent for a helping hand if you’re not confident researching the market.
- Research the developer
When you buy off the plan, you’re trusting the developers with a great deal of money, so you need to be sure they’re reputable. Start by Googling their business name and seeing if they’ve had any failed projects or disputes with buyers in the past. People love writing reviews, and it’s good to check out and weight up both the good and the bad reviews. Find out how long they’ve been in the industry and what other properties they’ve built. If possible, it’s a great idea to visit one of their former developments and look around to get an idea of what yours might look like.
- Visualise the property and analyse the plans
Take the time to visualise what the apartment will look like, how it will fit in the surrounding area and what it might be like to live in.
Go for a property with lots of north facing windows to ensure that it’ll be light and airy. Check with local government whether there are any plans to build in neighbouring lots to ensure you don’t lose your view. Go for a property with a wide, short floorplan, rather than one that’s long and this, because, as a general rule, apartments like this are usually more liveable.
Check that each room makes sense and is large enough. Consider where in the development your property is and whether it might be noisy if it’s nearby an elevator, street or park.
- Know the risks
There are several risks when buying off the plan, so you need to do your homework. Some of the most common risks include:
- The property going down in value between now and when construction is complete.
- Construction finishes but the building is different from the original plans.
- The developer not being able to finish construction.
- Not being able to secure finance and losing your deposit.
- Buying a type of property that is oversupplied (most commonly apartments) which can make it difficult to sell or rent.
- The property not being finished up to the standard you expect.
If you’re careful and conduct your due diligence when you buy, you should be able to minimise most of these risks and end up with an excellent property.
- Think of future-buyers
Whenever you buy any property you should think about who might buy it in future. If you’re unsure whether the property will appeal to the demographic of buyers in the area, you may struggle to attract interest or get a fair price if you ever sell.
This can be difficult to do when you’re buying off the plan as you won’t get to see the property before you commit to buying it. Instead make sure you look closely at the floorplan, know the standard of the finishing, fixtures and fittings and visit a show room to get an idea of how it might look, feel and flow.