One of the important considerations you will need to make when buying a property is: should you buy an established home or is buying off the plan a better idea? While the excitement of being the first person to live in the home and the flexibility to choose your floor plan and colour schemes may be appealing, there are also some common pitfalls that you need to be aware of if you intend to buy off the plan.
This article will help you establish the pros and cons of buying a ready built home off the plan.
Benefits to buying off the plan:
- Lock in a price – One of the advantages of buying off the plan is that you will pay the current market price for a property, even though it will be completed in the future.
- Securing a high value asset for a low initial capital outlay – While a deposit is made to secure the property (usually 10%), the entire payment doesn’t need to be paid until the property has been built. This provides you with time to organise your finances and if required sell your existing home without the need for bridging finance.
- Increase in property value – If the market experiences growth, the property you purchase off the plan today may increase in value when you settle two years later.
- Tax advantages – If purchasing for investment purposes, you may be able to claim depreciation on your tax for items like fixtures and fittings. It is important to consult your Accountant to find out if you are eligible.
- Stamp duty savings in some states – State governments (in certain states) offer bonuses and reductions in stamp duty for buying off the plan which can save you thousands of dollars.
- Seven year builders guarantee – Newly built properties in Australia come with a 7 year builders guarantee which means structural or interior building faults must be repaired by the builder.
Risks to buying off the plan:
- Falling property market – There is a risk that you may pay too much for a property if the market falls between the exchange of contracts and building completion. If this does occur you may find it difficult to secure finance for the full amount.
- Failed expectations – As many builders do not allow you to see the property until construction has completed, there is a risk that what you envision is not what you will receive. The quality of work may also not meet your standards.
- Rising Interest rates – Interest rates could increase before you settle on the property which is problematic if you wanted to fix the term of the loan at the current interest rate.
- Bankruptcy – Many buyers fear the developer could go into liquidation before the project is completed. You need to ask what the options are if this occurs; will you get your money back and what guarantees do you have?
Ensure you have a Solicitor or Conveyancer check the terms of the agreement to ensure you are protected should this occur.
Before you sign the dotted line…
- Visit the property site and check the location. If there are other constructions in the area, it may affect your view.
- Carefully inspect the display home, models and plans. Investigate the fixtures, fittings and finishes.
- Research the market conditions and speak to an expert to determine the property prices.
- Research the developer. You may wish to:
- o Ask how long they have been in the industry and how many properties they have built.o Visit your developer’s previous work, inspect the quality and speak to previous clients to determine their satisfaction with the property.
o Ask questions to determine what is covered as part of the purchase price, for example, what fittings, floor coverings, painting and decorating is part of the package and what is additional.
o Discuss your expectations for the property with your developer and have them written into the contract to avoid disagreement with the developer at the completion of the project.
o Obtain guarantees of their financial status written into the contract if possible, to avoid encountering financial complications with the developer. Ask to see the developer’s balance sheet to determine their financial strength as there is a risk that if the developer goes into liquidation before the property is finished you may lose your deposit and other costs.
- Carefully review the contract with a legal professional. Take note of:
- o The completion date.o If there are penalties if you withdraw from the contract.
o If you can visit the site during construction.
o If you can make changes to finishes and fixtures.
o What happens if the developers run into financial problems and what happens to your deposit?
o What happens if faults are identified post-completion?