You’ve found the perfect home or investment property, but the only problem is … it’s stuck in 2D. Is buying a property off-the-plan a good idea? The answer will depend on your particular circumstances. This article will help you decide whether purchasing off-the-plan is a good idea for you, and guide you through the checks to make before taking this step.
Is buying off-the-plan right for me?
Investors vs Owner Occupiers
Whether buying off-the-plan is right for you may depend on your purpose for purchasing. Investors and owner occupiers often have very different wants and needs for their properties. Property investors are primarily concerned with numbers. Their goals are often to purchase a property for less than its value, rent it out for a good return, and later sell at a much higher price than they paid. Owner occupiers, on the other hand, have much different goals. While they may indeed be interested in resale value, they are looking for a property that is aesthetically pleasing, practical for their lifestyle requirements, and essentially feels like home.
For these reasons, purchasing a property off-the-plan may be better suited for investors rather than owner occupiers. It is often difficult to assess whether a property will satisfy the goals of owner occupiers mentioned above when all you have to go by is a blueprint or a miniature model. The final product could be a disappointment likened to when your favourite movie is turned into a crappy movie – except in this case, you’ve spent a lot of money on it!
That isn’t to say that buying off-the-plan will always be the right decision for investors, and vice versa, but it is one thing to consider. Another useful step will be to weigh up the pros and cons of buying off-the-plan.
- You can often get the property you want, in a good location, and at a lower price by getting in early.
- You can benefit from any market price increases over the period of construction.
- Buyers can enjoy tax depreciation benefits and government incentives.
- Risk of the property not living up to your expectations – whether due to the seller completing the property to a lower standard, or simply due to the difficulty in visualising a property before it is completed.
- Risk of default on construction.
- Risk of your financial situation changing for the worse.
- Risk of the market dropping between the time you purchase the property and the time it is complete.
What checks should I do before buying?
Buying property off-the-plan entails its own unique risks. Before handing over your money on a planned development, you should do your own research and perform the following checks.
- The Contract
Buying off-the-plan involves signing a contract of sale which is drafted and tailored quite differently to a regular contract of sale. In particular, you should check that the following factors are included in your contract:
- Cooling off period
- Adequate plan of disclosure
- Deposit amount
- Inclusions and warranties
- Stamp duty
Make sure you are happy with the contract in terms of each of the factors above, and seek to negotiate if you are not.
- The Builder/Developer
Perform a background check of the builder or developer. Visit the company’s website and view information relating to past and present projects, contact details, and the directors. Read reviews of others’ experiences with the builder/developer in the past. Finally, you can do a licence check on any of the state government websites to obtain information such as:
- Details about the licensee
- Date of issue and expiry of the license
- Results of any disciplinary determinations and prosecutions
- Any cancellations or suspensions of the license
The developer has an obligation to provide home warranty insurance cover before entering into a contract for sale of an off-the-plan property, provided the contract is for more than $20,000. This covers the owner of the property for loss or damage resulting from non-completion of work, loss of deposit, or breach of a statutory warranty. There are some exceptions to this rule, so you should research the laws in your state to see if this applies to your property.
Need more information?
Buying off-the-plan can be a daunting decision to make, so it is always good to get a great agent on your side to take you through the process. If you have any questions or would like any further information, please don’t hesitate to contact me.
Vogue Real Estate