What You Need To Know About Buying Off the Plan

Few things are as exciting as buying a new home, however, buying ‘off the plan’ can sometimes be daunting if you haven’t been through the process before.

Buying property ‘off the plan’ means that you are committing to buying a property that hasn’t been built yet. For both potential homeowners and property investors, buying off the plan can offer more affordability and flexibility than buying an existing home, however, it also comes with some other considerations.

Here are a few things to think about when making your decision as to whether buying off the plan is right for you.

Benefits of buying off the plan

  • The purchase price can be far less compared with an established property, as developers typically offer lower prices and financial incentives prior to construction. Turnkey packages offered by the developer and associated builders can also see you offered further incentives and benefits which you would not receive with an existing build.
  • Depending on whether you have purchased just land or a house and land package, typically you’ll only have to pay a deposit to the developer and then pay the remaining balance either on completion of the property. This means you’ll have more time to save before settlement while the property is being built.
  • Although you may not have had to settle the balance of your property yet, your property still may increase in value as it’s built, providing you with early capital growth.
  • There’s more tax depreciation available on new properties, meaning you can maximise benefits and improve after-tax cash flow.
  • The sooner you buy of the plan, the more ability you are likely to have to customise your property, including choosing the location and even the floor plans and finishes.
  • In NSW, most new home builds are protected by builders’ warranty insurance while your property is being built, which means certain structural or interior building faults that emerge within a certain timeframe must be repaired by the builder. However its always best to check the NSW Fair Trading website for specific details on this.
  • In NSW, you may be eligible to claim exemptions or concessions on stamp duty, and there can also be certain tax deductions for property investors. Always check the local government website for updates to these exemptions and concessions.

Things to consider before buying off the plan

  • Though you can plan meticulously, the final product will not be known until the property is fully built, so make sure you have a firm plan in your head about what the final result looks like to you. Making changes after you have commenced building can have many consequences and can lead to unexpected increases in costs.
  • As with any kind of construction, timings can be delayed. This can be caused by anything from waiting for DA approvals with the local council, poor weather conditions and amendments to your original plans. For this reason, its always helpful to set yourself a buffer just in case your plans run behind.
  • Although banks and other lenders may offer conditional approval (finance in principle) for off-the-plan purchases before construction commences, most financial institutions 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.
  • Depending on the borrowing conditions of your home loan, always make sure that you have the ability to service the loan just in case there are any interest rates rises or there is a change in your financial situation between the time you agree to buy and actually purchase the property.

As always, its best to seek the advice of a professional advisor prior to making any major purchase. In this case, it is likely that you will need a financial adviser, conveyancer and/or solicitor to go through the relevant contracts with you closely. Look for any unexpected costs or conditions that may affect you down the line. Also, look at what will happen should things not go to plan.

Some key questions to ask include:

  • What happens if the project finishes earlier or later than scheduled?
  • Who takes responsibility for any defects?
  • Can you resell the property before it’s completed?

We hope that these considerations help you with the purchase of your new home.