Buying ‘Off the Plan’: What Should You Be Aware Of?

Buying ‘Off the Plan’: What Should You Be Aware Of?

When purchasing your first home, you’ll probably be faced with the decision to either buy established or ‘off the plan.’

If you’re leaning towards buying ‘off the plan,’ the excitement of being the first person to live in the house, combined with the flexibility to choose the floor plans and colour schemes, can be overwhelming. However, there are some pitfalls that you must be aware of.

Buying ‘off the plan’ is very different from buying an established home. It refers to purchasing a property before a house is completed or certificate of title has been issued. A deposit is paid to the developer and settlement can occur anywhere between months or years later when the building is completed.

Benefits of buying ‘off the plan':

•    Lock in a set price: Buying ‘off the plan’ means that you will only have to purchase the property at current market price, despite the fact it'll be built in the future.

•    High-value asset at initial low capital outlay: You’ll only need to put down a deposit, until the building is completed. This gives you time to get your finances in order; either by securing finance or selling your current home.

•    An increase in property value: If the area you purchase property in experiences market growth, your purchase may have increased in value before you settle later.

•    Seven Years Builder’s Guarantee: In Australia, all newly built properties come with a seven-year builders guarantee, which means structured or interior building faults must be repaired by the builder.

•    First Home Owners Grant (FHOG) eligibility: First home buyers are only eligible for the FHOG if they purchase a new property, either by buying ‘off the plan’ or a property that has never been lived in before.

Risks of buying ‘off the plan’:

•    Failing property market: The dangers of buying a house it’s built is paying too much if the market falls between the exchange of contracts and building completion. If this does happen, you may find it difficult to secure finance.

•    Disappointment: As the property isn’t built yet, there is the risk that the home you envisioned isn’t up to scratch. The quality of work may not reach the standards you expected.

•    Interest rate rise: There is the risk that interest rates may increase before you settle, which is an issue if you wanted a fixed term loan at a current rate.

•    No finance clause: Off the plan contracts do not allow you to include a finance clause. This means that you run the risk of losing your deposit and can be sued for any loss the builder incurs if you are unable to obtain finance once the settlement is due after completion of the property.

•    Bankruptcy: There is the chance that the developer could go into liquidation before the project is finalised. In this case, you need to ensure you’re protected and check the guarantees before signing the contract.

Tips to consider:

•    Do your research: Check the location and visit the property site before deciding. Research market conditions and speak to an expert to find out property prices.

•    View and inspect display homes: do they match what you’re after?

•    Research the developer: How long have they been in the industry? How many properties have they built and what was the quality?

•    Don’t forget to ask what is included in the purchase price

•    Review the contract with a legal professional: take notes on the completion date, visitation rights, what happens when faults are found after completion and what happens to your deposit if the developer runs into financial strife.

At Select, we offer no-obligation, quality and free advice to help you reach your financial goals. Give us a call on (08) 9417 3399 to talk with one of our brokers.