Mortgages, Money and Me

Buying ‘off the plan’

Buying a “home off the plan” is the term used to describe the purchase of a house or apartment directly from the property developer prior to the completion of construction.

This is a popular purchase for many first home buyers as the majority of these developments are in inner city locations close to popular lifestyle hubs.  They are also popular with foreign investors and temporary residents as the purchase normally satisfies Foreign Investment Review Board purchase requirements and does not require sale of property once temporary residency expires.

A major benefit of purchasing off the plan is that you’ll own a brand new property. There are also financial benefits. For example, you’ll have the security of knowing how much you’ll pay for the property in the future, even if its value increases. Construction usually takes a year or two, so there’s time to save before you settle.

Depending on which state or territory you’re in and your type of Visa (if you have migrated to Australia), you may have access to stamp duty and tax concessions or other government grants. If you’re purchasing the property as an investment you may also be eligible for tax benefits. You should consult with your accountant for personal financial advice specific to your circumstances.

Ask yourself these questions:

1. Do you know the risks?

Off-the-plan contracts try to cover future issues. Check that certain scenarios, such as construction delays or if you want to withdraw, are clearly addressed. Once the building is complete it might not meet your expectations.

(There have been claims that builders have voided contracts through building delays, and then sold apartments at higher prices.  Read your contract carefully to understand your rights in this situation and it is recommended that you seek legal advice prior to signing).

Find out whether the developer has taken out home warranty insurance. Depending on the relevant state or territory laws, builders may be required to include a certificate of insurance in the contract. Even if this isn’t the case, you can ask the developer for proof of insurance before you settle. Your broker or home loan lender may help with this as part of the lending process.

The property might be everything you dreamed of, but there’s always a risk the market may have changed by the time you settle. While you can’t avoid this, you should do some homework before you buy. For example, look at properties being built in the area to work out if there’s likely to be an oversupply (and a corresponding devaluation). Some lenders may look at the value of your property, rather than what was paid for it when considering how much they will lend you.

2. Does your contract limit the risks?

The contract should be comprehensive, covering everything from price, completion date and your legal rights, to conditions such as:

• whether you can on-sell the property before it’s completed
• what happens to your deposit if the building doesn’t go ahead
• what happens if completion is delayed.

It’s important to obtain legal advice before entering into any contract.

3. Who is the builder or developer?

Before you’re committed to buy, it’s important to know your builder is reputable. Visit the building company’s website and check out past projects or visit any display homes. Use online forums to find company reviews.

You should also consider how much input you will have during the construction phase. Can you make site visits during construction? Can you make changes to the finishes and select the appliances? Can the builder make changes without telling you?

4. Are you eligible for government grants and concessions?

One of the best things about buying off the plan is owning a shiny new place. Another perk is the potential of government grants and concessions for off-the-plan buyers. Check eligibility with your state or territory duties office.

5. Are you financially ready to buy off the plan?

You’ll usually need a deposit to secure the property with the balance payable upon settlement. Because of the longer waiting period between exchange of contracts and settlement, those requiring loan pre-approval should check that approval can be obtained earlier while the project is being completed.

6.  Is the timeframe right for you?

If you are wanting a home sooner rather than later you need to be aware that off the plan purchases can often be delayed due to issues with construction and government approvals.

While there are some risks when buying off the plan, being prepared and asking the right questions can help you to enjoy the benefits of a brand-new home.