Buying Off The Plan: The Pros and Cons Explained

Buying off the plan can be an intelligent way of buying apartments in Australia. Savvy investors, homeowners and first home buyers can buy off the plan and secure a great opportunity. However, unlike existing property, off the plan purchases happen before construction is complete, and there are many pros & cons to consider before making a decision.

What Is Buying Off The Plan?

Buying off the plan is when you decide to purchase a property before it has been built or is still currently under construction. Buying an off the plan property means you sign the contract of sale before seeing the finished product.

There are many factors to consider when purchasing a property sight-unseen. While buying off the plan does carry risks, buying a property before construction begins could be incredibly beneficial.

 

The Pros Of Buying Off The Plan

 

Considering the many benefits of buying a home off-plan and knowing what to look for to mitigate risk can help you decide if buying an off the plan property is right for you. Understanding the benefits and pitfalls of buying off the plan can help you negotiate with the developer to secure the best purchase price and get a great deal.

 

1. First Home Owner Government Grants

First-time homebuyers are eligible to receive a one-off government payment known as the First Home Owner Grant (FHOG), which applies only to those buying new homes, including off-the-plan properties.

2. Stamp Duty Concessions (Reduced Costs)

In Australia, buying a home generally incurs stamp duty, also known as transfer duty. First-time homebuyers purchasing an off-the-plan property intending to be their primary residence will likely qualify for a concession or exemption from these duties. However, this concession or exemption will most likely not be available to investors purchasing off the plan to use the property as a rental.

3. Your Home Could Increase In Value Before You Move In

If property values increase after you have already signed your contract, you could end up paying much less for your new home than what it is worth. 

Australia’s strong property market has seen strong growth. As a result, increases in property value could decrease your loan-to-value ratio (LVR), meaning the amount of money you borrow to purchase the home becomes a smaller percentage of what the home is worth. The decreased LVR could end up saving you from paying Lenders Mortgage Insurance (LMI), a charge incurred for paying a deposit of less than 20% of a home’s value.

4. More Time To Save

You will usually pay a deposit of around 10% when you sign your contract, and the rest of your payment will not be due until the home is move-in ready, which could be six months or longer. This extra time means you can save for a larger down payment, home furnishings, or other costs associated with moving.

5. You Could Save Thousands On Repairs & Replacements

One of the pitfalls of homeownership is the seemingly constant need to repair and replace major appliances and general house upkeep. However, when you purchase a brand new property off the plan, it includes brand new appliances, meaning that you have several years that you don’t need to worry about replacing the refrigerator, stove, air conditioner, or whatever happens to break next. 

Buying off the plan can give you peace of mind that everything should be in good working order for the first few years of homeownership while you focus on paying down your mortgage faster.

6. Developer Incentives

Developers can offer many incentives for buying a property before construction has begun. In addition to lower prices, developers may offer furniture, gym memberships, and other incentives.

The price you pay for an off-the-plan home will likely be much lower than the home price once construction is completed. Having this lower locked-in pricing in addition to receiving other incentives that you would otherwise need to purchase separately can end up saving you a lot of money when compared with buying a home that has already been built.

7. You Will Save Money On Power Bills

Newly built homes are required to meet strict energy efficiency standards, so buying a new property instead of an older one can end up saving you thousands in energy bills. Off-the-plan real estate will include the most up-to-date gas, water, and electricity systems, and your new home will have the most energy-efficient appliances on the market as well. 

8. Input On The Design

Buying a house before construction has begun could provide you with the opportunity to weigh in on the design elements of the home, from the floor plan to the colour scheme. Having input on decisions about your property can mean that the developer’s plans and your vision can combine to make the home of your dreams a reality.

9. Tax Deductions For Property Investors

Investors who buy an off the plan investment property as a rental can benefit from buying off the plan. A surveyor can help you create a depreciation schedule to determine which items within the property are tax-deductible. 

Building allowance is a deductible available for the actual structure of the building itself, and plant and equiƒpment deductibles are also available for items within the home such as appliances.

 

The Cons Of Buying Off The Plan

Like with any investment, there are risks associated with buying off the plan and it’s good to be aware of these before you sign on the dotted line. Make sure you do your research on the developer, many of the risks of buying off the plan can be avoided with this step alone.

1. The Home Could Decrease In Value

Just as your off-the-plan home could increase in value before you move in, it could also decrease in value. If the value of housing in the area drives the value of your home down, you could find yourself with an increased LVR, which could mean having to pay Lenders Mortgage Insurance if your increased LVR drives your deposit below 20%.

 

2. You Won’t Know About Any Structural Issues Until Completion

When buying an already built home, you can learn about the history of the building and look for signs of any structural issues it may have. However, buying before your home is constructed means that structural problems may present themselves, catching you off guard. 

One strategy for minimising this risk is to learn about the developer’s history, are they good builders with a proven track record? Look at their past construction projects to determine if the developer is reputable. For example, a history of structural issues in past projects could be a red flag, but if the developer has a history of structurally sound buildings, you can assume that your home should be within the same standards.

3. Not Meeting Your Expectations

It may be hard to envision what your new home will look like while looking at floor plans and mock-ups. The completed home may live up to your grand visions, or it may not. 

Thoroughly communicate with the developer throughout the process to ensure you fully understand how your property will look. The developer should also communicate if they make any changes not discussed when you signed your contract.

4. Construction Could Be Delayed

When buying off the plan, you run the risk of your home not being completed by the originally agreed-upon date. This does void your contract thanks to a sunset clause, but if you still want the property, you may have to start the process all over again. In addition, if the value of homes in the area has increased, you could end up paying more than the original price.

Again, construction delays can be avoided by looking at the developer’s history. Whether or not past projects were completed within the originally planned time frame could provide a clue as to whether your home will be ready for move-in on your expected date. Although some delays will be unavoidable, proper project management should ensure that construction is completed on time. 

5. You Could Be Expected To Pay Body Corporate Fees

Many off-the-plan properties include access to a complex’s amenities, such as a gym, a pool, and cleaning services. These amenities will incur a monthly fee for all residents of the complex.

If you plan to take full advantage of these amenities, the fees you pay could end up being a bargain compared to the prices of gym memberships, house cleaning, and other services if purchased separately.

6. Construction Delays

When buying off the plan, you run the risk that your home ends up taking much longer to build or never being built for one reason or another. If the building failed to be completed, your contract would be voided, which means your deposit would most likely be returned to you in full. However, if the project was not completed due to the development company going bankrupt, you could face an ordeal trying to get your deposit back.

Be sure to look at the developer’s history to see if they are reputable. Your contract should also include details of what would happen if the project went unfinished, and this is certainly something to discuss with the developer before signing.

7. Sunset Clause Expiring Before Project Completion

A sunset clause is a statement in the contract of sale that puts a time limit on the contract’s validity. If the developer fails to complete the build by the date outlined in the sunset clause, the contract is declared null and void and the deposit returned to the buyer. 

The clause is meant to act as a safety net for the buyer if significant construction delays occur. But it can also work against buyers with some developers delaying projects to void the contract so they can resell at a higher price. This is a rare situation. Still, it’s worth being aware of and making sure you do your homework on the developer.

Some Final Tips

  1. Spend some time researching and choosing a developer with a history of delivering successful projects. 
  2. Check with the developer to see if they offer any extra incentives or bonus inclusions for buying off the plan. 
  3. Find out if there are any maintenance agreements or a construction warranty after the project has been completed.
  4. Check to see if the developer has provided a statement, often referred to as a disclosure statement detailing information about sunset dates, development approval and strata schemes to help you make an informed purchase decision. 
  5. Read the contract terms and conditions carefully before buying off the plan. If you’re not sure what to look out for, seek legal advice from a conveyancer or lawyer to help you understand the contract price and risks before signing anything.


If you do your due diligence and research the market and developer carefully, buying a property off the plan can make a great addition to your growing portfolio or a perfect first home.

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