The top eight considerations when buying off the plan

In Australia, a significant percentage of real estate transactions involve properties bought off the plan, yet this approach remains unfamiliar to many buyers.

Purchasing a property before it’s built can offer several opportunities, but it also comes with unique risks and considerations. Understanding the ins and outs of the off the plan buying process is crucial for making an informed decision.

In this article, we’ve highlighted the key factors to consider when buying off the plan, ensuring you’re well-prepared for this important investment.

1. What does "buying off the plan" mean?

Buying off the plan refers to purchasing a property, such as an apartment or house, that has not yet been constructed or is currently under construction.

Instead of viewing a finished property, buyers base their decision on building plans, designs, and artist renderings provided by the developer.

2. What are the advantages of buying off the plan?

• Potential Price Savings: Developers often offer competitive prices and incentives to secure early buyers, particularly before construction begins.
• Extended Saving Time: You typically only pay a deposit upfront, giving you more time to save for the remaining balance due upon completion.
• Capital Growth Potential: The property's value may appreciate during the construction period.
• Modern Design and Features: Enjoy new, contemporary designs and the latest amenities.
• Stamp Duty Savings: Some states and territories offer stamp duty concessions or exemptions for off-the-plan purchases, especially for first-home buyers.
• Tax Advantages for Investors: There can be potential tax deductions for investors, such as depreciation benefits.

3. What are the disadvantages and risks of buying off the plan?

• Project Delays: Construction timelines can be unpredictable, potentially leading to extended settlement periods.
• Potential for Value Fluctuations: The property market can change during construction, and the final value may be lower than the purchase price.
• Developer Bankruptcy: If the developer goes bankrupt, completion of the project may be jeopardized, and deposit recovery could be difficult.
• Limited Customization: Changes to the design or finishes might be restricted once construction has commenced.
• Unforeseen Costs: Be cautious of potential hidden costs or variations that can arise during the development process.

4. How does financing work for off the plan purchases?

Lenders may grant conditional loan approval (pre-approval) based on the projected value of the completed property. However, the final loan approval and amount are contingent upon a valuation conducted closer to settlement.

This final valuation ensures the property's value aligns with the loan amount and assesses any changes in your financial situation.

5. What is a sunset clause, and why is it important?

A sunset clause is a provision in the contract that allows either the buyer or the developer to terminate the agreement if construction has not reached a specific stage by a predetermined date. This clause protects buyers from indefinite delays and allows them to potentially recoup their deposit if the project faces significant setbacks.

6. Can I negotiate the price when buying off the plan?

Negotiation is possible, especially in the early phases of a development when the developer is seeking to attract initial buyers.

Be prepared to do your research and make a reasonable offer.

7. What should I check before signing an off the plan contract?

• Developer Reputation: Research the developer's track record and financial stability.
• Contract Terms and Conditions: Carefully review all clauses, paying close attention to payment schedules, sunset clauses, potential variations, and dispute resolution processes.
• Inclusions and Finishes: Obtain a detailed list of inclusions and specifications, including the quality and brand of fixtures and appliances.
• Seek Legal Advice: Consult with a solicitor or conveyancer to ensure you understand the legal implications of the contract before signing.

8. How is my deposit protected when buying off the plan?

Deposits for off the plan purchases are held in a trust account until settlement. This protects your funds in case of developer insolvency or project failure.

Be sure to understand the specific deposit protection regulations in your state or territory.