There’s nothing like buying a property for less than its market value to get ahead on the property investment ladder.
That’s why buying a property ‘off the plan’ can offer some real advantages. In most states buying off the plan incurs considerable stamp duty savings.
Potentially, capital growth on the property can occur prior to settlement as most developers offer lower prices and financial incentives to get in on the project early.
So buying off the plan can offer more opportunities to profit, but there is a lot more to consider when buying off the plan. These tips will help you focus on what’s important and assist in avoiding some of the common pitfalls when buying off the plan.
Get the right price
Getting in on a development early can help you to get a better price because developers need fast, early sales to get a project off the ground. Together with stamp duty savings and government incentives, this could put you well ahead on the value of the property you’re buying. But there is no guarantee that the price you pay will reflect the market value of the property when it’s completed.
Do your homework about the area you are buying in. Consider other developments in the area and the number of new properties that will be coming on to the market at the same time as yours. Oversupply could reduce the value of your property investment so check with the council to see what other developments are underway, talk to local real estate agents and seek professional advice.
Research the developer and builder
An experienced developer with a good reputation is always a wise place to start. Ask to see some of the other projects the developer has completed and talk to the property owners if possible. Visit the company website and learn what you can about the developer’s business.
Once satisfied about the reputation of the developer, ask for the license number of the builder that will be used to build the property. You can then run a check on local government websites to make sure the builder is qualified to complete the project and has no outstanding disciplinary actions or prosecutions against his business name.
Understand the terms of the contract
When you buy off the plan, you are buying a property that does not yet exist and may take as long as two years to complete. In an off the plan contract, you are provided with plans and specifications of what the developer intends to build and construct as the finished product.
The contract should provide highly detailed plans that include specifications for every item involved, from a floor plan layout with measurements in millimetres, to specifications for the fixtures and fittings, right down to the name and model number of the appliances that will be installed in the kitchen. Also make sure your contract includes specifications for all common areas, lifts, gardens and car parking and specifies additional costs like annual strata fees.
Off the plan contracts must also include a ‘sunset clause’ which defines the amount of time the developer has to complete the project. Make sure the time allowed is realistic, an 18 month sunset clause is common, so you should be wary of longer timeframes.
It’s important that the words of the contract match your understanding about what you will be getting for your money. Before signing or leaving your deposit, go over it with a legal professional who understands property law.
Choose your property investment wisely
Buying off the plan gives you more opportunity to get the property you want because you get to choose from a variety of properties on the plan. Make sure you choose a property with a good aspect and check local building approvals to make sure your view won’t get built out by another development.
When buying off the plan, the right choice of property can make your purchase worth more than the others in the same development whilst actually costing the same amount. This maximises its potential for capital growth.
Arrange your finance first
With up to two years between placing your deposit and settlement, it may be tempting to postpone organising the finance until after you’ve signed the contract, but this could result in you losing your deposit if finance cannot be arranged. Many lenders provide long-term loan approvals for off the plan purchases. Speak with your mortgage broker who can assist you in organising finance for off the plan purchases or your other property investment mortgages, to make sure you’ll always come out on top!