When looking for a property, buyers need to decide if they want to purchase off the plan or buy an established home instead. Buying off the plan is tempting, especially when you consider the glossy marketing materials, illustrations and sale pitch from the developer, but there are also drawbacks.
Here are some pros and cons of buying a property off-the-plan:
The Pros of buying off-the-plan
- Discounted price: If the developer is desperate to move stock you may get a discounted price on the property. In a rising market, buying off the plan can also be a good strategy because you only have to put a deposit down, and settle when it is completed. If the market rises in the meantime you can make a capital gain while investing very little capital. Some people even on-sell their property before settlement and achieve a windfall profit.
- Tax benefits: If you’re going to buy for investment purposes, you may be able to get tax benefits such as depreciation on your items like fixtures and fittings. Make sure to consult your accountant first to find out if you are eligible.
- Stamp duty reductions: Many state governments provide incentives for first homebuyers to buy newly-built homes. Visit your state or territory government’s website to see if you’re entitled to a stamp duty reduction for buying off-the-plan. This can save you thousands of dollars.
The Cons of buying Off-The-Plan
- No market price: When you buy off the plan, you don't really know what the market price is for those properties. When you buy an established homes it has traded before and there are local comparable sales to use as a price guide so it is much easier to value. When you buy off the plan, true comparable sales are much harder to find.
- The developer goes broke: There are some things in life that are out of your control. The construction of a property may not be completed for a variety of reasons but usually because the developer goes bankrupt. In this case, buyers typically lose their deposit because they have to wait in line with all the other unsecured creditors.
- Construction gets delayed: It’s not uncommon for the construction of the property to be delayed due to unexpected problems. We are not talking about small delay here but delays of years. If this happens, check the ‘sunset clause’ in the contract of sale. This refers to the maximum time the developer has to finish the project. If the property is not finished by this time, you can legally get your deposit back in full.
- Your expectations may not be met: One of the cons when buying off the plan is that you’re not able to physically see the property. The work may not be up to the standards promised by the developer. It may even be smaller. However, if it is more than 5 per cent smaller, you have the right to renegotiate the price.
Minimise your risks when buying an off-the-plan property by doing an extensive research on the history of the developer, the contract and the plan itself. Make sure you have your finance pre-approved so you are in a strong position to negotiate with the developers are are able to settle when required.