Buying property “off the plan” means committing to buy property in a new development before construction is completed- often before it has even begun. It is a popular move, especially among foreign investors, when the property market is hot and prices are rapidly rising.
An “off the plan” purchase can be a savvy choice to lock in a favourable price, claim depreciation and stamp duty exemptions. In NSW, for example, when buying a newly built property for less than $650,000, a $5,000 grant can be applied for, and a $15,000 grant for first homebuyers. Buyers are also exempt from stamp duty for homes valued at less than $550,000 (or land valued at less than $350,000), or a concession on stamp study for properties valued between $550,000 and $650,000.
Despite the potential benefits, buying property off the plan can also be risky. If you are in the market for property off the plan, here are ten tips to protect your investment.
- Seek independent legal advice. Do not rely on an attorney suggested by the developer or agent.
- Research the developer’s reputation. The less than scrupulous ones have generally left a trail behind.
- Make sure that you evaluate the market for resale, rental or rent-to-buy opportunities in the location. Research the prices of comparable properties in the same area, and evaluate price separately from any incentives the developer may offer.
- To get the greatest return, buy early in the process. The price will appreciate as the project nears completion.
- Don’t be dazzled by the “flash”. Check basic details such as building materials, bathroom and kitchen fittings, cupboards, floor finishes, size of elevators, balconies, parking, gardens and communal space. It would be wise to keep all marketing materials.
- Check the mundane details, including laundry, utility costs, broadband availability and fire safety.
- Ensure you understand what the developer may modify, and negotiate to preserve your right to cancel the contract if there are significant changes including adding levels, reducing open space or additional construction that might block a valuable view.
- When is the deadline for completion, otherwise known as the “sunset date”? What are the financial consequences if the project is not completed on time? Will you have the right to cancel, at what point and with what financial ramifications?
- Set in place an enforceable way to get your money back if the developer abandons the project or becomes bankrupt.
- Make sure that the plan has council approval, and check the bylaws for things like pet or access restrictions.
Buying a property “off the plan” may be a smart move, but buyers should protect themselves with due diligence and vigorous contract negotiation. Ensure that you have good independent professional representation- good advice is almost always worth the cost in a speculative transaction such as an “off the plan” purchase.
About Rolf Howard, Managing Partner, Owen Hodge Lawyers
Rolf is managing partner of Owen Hodge Lawyers. He has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992. Rolf focuses on assisting clients to proactively manage legal responsibilities and opportunities to achieve competitive advantage. www.owenhodge.com.au.
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