How to research an off-the-plan property thoroughly and effectively
As we wait out the COVID-19 uncertainty, it's an excellent time to do your research into potential investment opportunities down the road.
One opportunity may be to invest in an off-the-plan purchase which allows you to pay a deposit now and typically complete the purchase in 12-24 months time - by which time COVID-19 will likely no longer be a serious threat.
When it comes to buying off-the-plan there are several steps you should take to ensure you are best positioned to make a thoughtful and informed decision.
Investigate the track record of the developers
It is crucial to do your research into the developer and builder. Look at what other projects they have worked on. Were there any issues with previous developments, both during sale and after completion? What was the outcome? Ideally, the off-the-plan development will be produced by a developer and builder with an excellent reputation in the industry and community.
Research the location
Where is the property located? Do your research on population growth forecasts, vacancy rates, expected rental income, local infrastructure, walkability, transport links and more, to get a sense of whether the location represents a good investment.
Areas with a high percentage of owner-occupiers are far less likely to suffer price falls due to oversupply issues and are more likely to have well-performing rental markets. The biggest price falls in any vulnerable property market will be the investor grade product in oversupplied suburbs. If it is not practical to do this research in person, then you can take the time to contact local property agents and businesses in the area who can fill in the gaps.
Review the quality of the project
A higher-quality project will always perform better. Look for projects with larger floor plans and lower density. Will the property have street appeal? Will the property have high-quality finishes and appliances?
It may make sense to focus on developments that are aimed at the local owner-occupier market, not just investors, as they will typically be of a higher standard and likely to be in greater demand from a rent and resale perspective.
Negotiate favourable terms
Once you have undertaken due diligence on the property itself, the next thing to do is to work with the developer or your buyer's agent to see if you can negotiate flexible terms which will reduce any risk to you. In the current environment, buyers are in a strong position to negotiate.
Consider terms such as the ability to exit your investment without penalty if your job situation changes in the future, a reduced deposit (for example 5% instead of 10%) or a 12-24 month rental guarantee. These protections should not be contingent on an inflated selling price. Make sure the terms in the contract are favourable and take into account the current economic conditions.
Is now a good time to buy an off-the-plan property?
With limited property supply, record low-interest rates and government stimulus flowing, we’re likely to see a positive flow-on effect to the property market post-COVID-19.
For investors looking for opportunities, now may be a strategic time to secure a high-quality off-the-plan property under favourable terms, something that may be a lot harder to achieve once buyers and investors return to the market in numbers.
