The rise of new apartment developments in our cities provides greater opportunities for potential homeowners to buy off the plan. There are benefits to this, especially if you pick the right location and development, but also a number of issues to be mindful of.
The video below provided by our off the plan expert broker – Andi Tjung looks at some of the things to consider when buying off the plan.
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 to two, so there’s time to save your deposit before the property is completed and settles.
If you need to borrow money towards the deposit speak to your broker about how to best structure the purchase. Most home lenders won’t approve a loan for a long settlement period, but a broker can provide advice about what assurances you can get regarding the amount you may be able to borrow when it comes time to settle.
Depending on which state or territory you are in, you may have access to stamp duty and tax concessions, or government grants. Most of these programs are aimed at increasing the supply of property – by incentivising the general public to build new, rather than purchase an existing property. If you are 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.
Things to look out for
Off-the-plan contracts try to cover future issues such as construction delays, or if you want to withdraw your offer. Make sure these scenarios and similar are clearly addressed.
Another issue; things don’t always go to plan. Once the building is complete it might not meet your initial expectations. Usually, the contract will have some leeway in terms of floor space and similar parameters.
This is why it is best to speak to a legal advisor before signing the contract, this way you avoid any big surprises.
You will also want to 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 construction is finished, and the property settles. 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 is likely to be an oversupply.
And lastly, you need to remember that lenders will look at the value of your property when you apply for a loan (once construction is done), rather than the value you signed the initial purchase contract at when considering how much they will lend you.
The biggest caveat here is – prices don’t always go up. In recent years, it’s quite the opposite. This is why you need to have a decent savings buffer to cover yourself if the lender’s valuation comes back lower than your purchase price.
This is why it’s always worth speaking to your broker about how your property may be valued and what your home loan options are.
In conclusion, by doing a little due diligence before you sign a contract, you can minimize the risks and reap the benefits of buying off-the-plan.