Have you ever wondered how off the plan buying works and if it’s really the right decision for you and your family?
If you don’t know what “off the plan” means, it’s simply referring to buying a home or unit before it’s been built. Many property developers make properties available for sale before they’re finished or before construction has begun and allow buyers to purchase based on the floor plans and renderings or show unit.
When you’re considering buying off plan, there are some important things to know before you start looking. Beyond just the “how to buy” you’ll also want to know the pros and cons of the process and the red flags to watch out for.
Pros of Buying Off Plan
There are several benefits to buying off plan, including:
- Discounted Price, Incentives, and Increased Value
Developers often sell units at a discount in order to attract buyers in the beginning phase of a development. They may also have sales targets to meet, therefore, discount prices as a way to meet them in the initial phase.
When you buy off plan, you’ll pay the current market value even though when it’s completed in the future it may have already increased in value.
In an attempt to boost the construction industry, many governments offer grants to individuals who purchase a property off plan. These incentives might be things such as a stamp duty reduction or new home grant. Additional grants might even be available for first-time home buyers. You’ll want to check your state or territory’s website to find out what may be available to you.
- Greater Customisation and Personalisation
Buying off plan affords you the flexibility to customise your home similar to how you would if you built your own. The extent you’ll be able to customise and personalise a home or unit will vary from developer to developer, but you’ll be able to pick things like: colours, finishes, and layouts.
Plus, if you’re buying into a development that is just beginning, you’ll have your pick of the lot you’d like to build on, so if there’s one with a great view or facing a great street, you can grab it up.
- Smaller Deposit
Typically, when a buyer purchases off plan, he or she can do so with a 10% deposit down with the remaining balance due upon completion of construction. This gives more time for the buyer to arrange the mortgage or come up with additional cash to offset the mortgage.
There is a warranty on the building structure of new buildings up to three stories high, which means you’ll have peace of mind should you be wary about the soundness of the building.
- Lifestyle Amenities and Current Preferences
Many new units are built with current buyer preferences in mind. Buyers now prefer open plan living and amenities such as a gym, pool, and concierge. When you buy off plan, chances are the units will more adequately reflect new tastes, preferences, and trends.
Cons of Buying Off Plan
Although there are many benefits to buying off plan, buyers should also beware of the cons, which include:
- Sight Unseen
A con to buying off plan is that you really don’t know what you’re going to get. You’re buying your home on paper, but there is risk involved in what the final product will look like, which means it might not live up to your expectations.
- Paying Above Current Market Value
When you buy off plan, you pay the current market value, however, if the market value decreases during the building process, you’ll still have to pay what you’ve agreed to, which means your property value may stagnate, or worse, decrease.
Most contracts will have a clause that allows the developer to cancel the contract under certain, special conditions. If this happens, you could be left without a property.
You might experience delays in construction due to unforeseen circumstances. Your proposed date of completion might be moved out, which could leave you scrambling to find a temporary place to live in the meantime.
- Financing Struggles After-the-Fact
If your bank provides pre-approval for financing for off plan properties, but will only unconditionally approve a loan if the property is deemed acceptable that means your financing is conditional.
You’ll be at the mercy of the bank to determine that the value and quality of your home is acceptable upon completion.
How Off Plan Buying Works
Now that you know the pros and cons of off plan buying, let’s have a look at how it actually works. When you buy off plan, you’ll buy directly from the developer, therefore, it’s crucial to check out the developer and make sure you’re buying from a company who has a proven track record and can be trusted.
When looking at different developments, you should consider the growth potential of a house, townhouse, or apartment and which is better suited for you and your location.
Once you see a development that piques your interest, you’ll likely look at the floor plan options or a model unit that is either unfinished or is finished with all of the top finishes and amenities to give you an idea of what you can purchase.
You’ll be looking for the layout and lot that best suits your wants and needs, but before you sign any documents, you should read the fine print and obtain some legal advice to make sure you completely understand what you’re getting into.
When reading through the options for the finishes, make sure you ask questions. The paperwork may say that you’ll get a glass shower screen, however, that glass could be 10mm thick or 5mm thick. If the paperwork doesn’t state the specifics, ask. You should know exactly what you’re buying.
More often than not, modifications and top finishes will cost you more. You should get absolute clarity around what your rights are and what substitutions can be made without cost and which ones will cost you extra.
It’s also important to have a backup plan. Many developments are not finished according to schedule, so you should have a plan in place as to where you will stay or what you will do should your home not be completed on schedule.
Before you buy off plan, you should think through the outcome should you ever want to sell. Are you purchasing in a suburb with good growth potential? Once the newness of the property wears off, will your home and location appeal to potential buyers? Does your property have great appeal? Does the developer have a good reputation or will buyers run for the hills when they know who built it?
There isn’t a right or wrong answer as to whether you should or shouldn’t buy off plan. It’s an investment that should be made based on your unique situation and objectives. You can follow sound advice and tips, but you’ll have to weigh the pros and cons for you and your family.
If you have questions about purchasing an investment property or would like to speak to a qualified real estate professional, contact us.
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