Plan for Success

As the name suggests, buying “off the plan” means purchasing a property direct from the developer before it has been built.

Whilst not for everybody, if approached carefully this can be a good way to buy.

Buying “off the plan” does have its critics, but it can be a sound strategy that has some advantages over purchasing other types of property.

How does it work?

Because the purchaser is buying the property before it is built, the process usually involves visiting a display home which showcases how the final property will look and feel, including the layout, finishes, and fittings in true to scale size.

To secure the property you will generally pay the developer a 10% deposit at the time of signing the contract, and then stamp duty (normally on just the land value) is payable within three months.

The balance of the purchase price is normally payable once the development is finished - and so settlement can be completed.

Advantages

• Lock in a price well before the property is built. In a rising market this means large capital gains can be made before you even move in to the property.

• Only pay stamp duty on the vacant land. This gives a saving of thousands of dollars when compared to paying stamp duty on an existing property.

• Tax deductions. Investors can also claim tax deductions such as depreciation and fittings on new property purchases.

• Continue to save. Because they’ve only had to pay the deposit, the purchasers can continue to save money during the construction period.

• Brand new property. One further advantage to buying “off the plan” is that you will eventually more into a brand new property. You may even be able to select the fittings (e.g. lights, carpet and dishwasher) for your home.

Disadvantages

• Locking in a price. As mentioned above, this can be an advantage in a rising market. The reverse is also true: in a slowing or declining market, the value of the property could be less on completion than the agreed and committed price.

• The delay. The lag between purchase and settlement can be several months or even a year or more. This is a disadvantage for people who want to move in straight away, or simply cannot wait this long.

• Hard to visualise. It can be very difficult to see what the property will look like, and to understand the standard of finishes, the practical layout, the size and dimensions or the view or the outlook until completion, which can lead to buyer disappointment.

What to look out for

Before purchasing off the plan you should thoroughly research the proposed development. This includes viewing the developer's previous work, and establishing the price of properties located nearby in similar sized developments.

“A rising market means that capital gains are possible.”A shrewd purchaser needs to understand the issues which will arise in construction of the development.

These could include the finish of common areas, likely noise, proposed security system, visitor parking, access to garages and landscaping.

It is also vital when reviewing the sale contract to seek legal advice to ensure you are covered if anything goes wrong.

Some key points to look for in the contract include:

• Proposed commencement and completion dates

• Details of the strata

• Body corporate and maintenance fees

• A clause that states the developer must inform you of any changes to the plan

• A full description of all finishes and appliances.

Conclusion

There can be rewards in buying "off the plan", particularly in the case of a development in a highly desirable location.

By being aware of potential issues and minimising the risk through research and the taking of legal advice, these rewards can be realised.