When it comes to bad press for properties with investment potential buying off the plan seems to attract the most of it. In actuality however buying off the plan has many upsides to it that might just make it a cut above the rest.
WHAT IS BUYING OFF THE PLAN?
In simple terms buying off the plan is the signing of a contract for a property that is yet to be built or in the process of being built.
Without a physical property to inspect, buyers base their decision on plans and artistic renderings of how the apartment might look, a display unit at the sales agency, in addition to information about the project and developer.
WHAT ARE THE ADVANTAGES TO BUYING OFF THE PLAN?
COST EFFECTIVE
The one main advantage of buying off the plan that tends to attract the most buyers is the lower purchase price than prebuilt properties. Since you agree upon a purchase price before the building is completed and generally only need to offer a 5-10% deposit.
Given the current circumstances of the affordability crisis, it’s a fairly logical assumption, as property prices generally tend to go up over time. However, it’s also not the only advantage to buying off the plan.
STAMP DUTY DISCOUNTS
An advantage to buying off the plans means that you could save a lot of money on stamp duty, as most states offer greater discounts on newly constructed properties. If a buyer signs a contract before construction begins, stamp duty will only apply to the land value, not the finished product.
NEAR-PERFECT CONDITION
Buying off the plan means that because the properties are brand new, these properties will be more energy-efficient and in better condition than a lot of older homes, meaning you likely won’t need to shell out as much on repairs and utility bills in the months and years ahead. Plus you have a 6 years warranty period when the builder must come back and fix any defects.
OFFER BUYERS MORE TIME
Buying off the plan also gives you a bit more time to get your finances in order, as you’ll generally only need to put down a 5-10% deposit to secure the contract, and can use the extended construction time to save up the outstanding balance. This allows you to stagger multiple property purchases and enables you to build up your portfolio quicker.
TAX BENEFITS
Finally, if you’re an investor who plans to lease out the apartment, buying a brand new property off the plan allows you to maximize the tax deductions available to you via depreciation.
HIGHER RENTAL YIELDS
If you’re an investor planning to lease out a brand new house, you’ll be able to charge more because tenants will be willing to pay more to live in a new and modern home.
WHAT ARE THE RISKS ASSOCIATED WITH BUYING OFF THE PLAN?
There’s always a trade-offs and in case of buying off the property they can be classified in these two broad categories-
SOFTENING OF THE MARKET
Just like the pro above where you could save money by only paying stamp duty on the land value, the exact opposite is also a possibility. That is, a buyer could agree to pay more for the property at the time of the contract as it was a high market, but experience a change in market condition by the time the property is completed. This could go either way.
DEVELOPER DELAYS
In addition to researching the current market conditions, buyers need to do their due diligence on the developer before they sign a contract, as the biggest risk they face when buying off the plan is delay on the property completion if the developer has any issues during construction.
Prospective buyers should ask the developer for evidence of past projects, contact people who have previously bought apartments from them, check for negative media reports, and, if possible, visit previous projects to assess the quality of the developer’s work. Another option is using a property strategyst to assist in the whole process.
IN CONCLUSION
Australian real estate has only got bigger with each passing year. There are more options and methods of approaching property investment available now than there was 20 years ago. But the universal rule dictates that nothing is perfect and so is true for these methods. Buying off the plan has its highs and lows just like any other form of investment. It all comes down to personal preference and your financial goals. There are no right answers here just the right one for you and if you need help figuring that out than our experts at Greenshoots wealth will be more than happy to oblige.
