Thinking of buying off the plan?

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Thinking of buying off the plan? Purchasing a brand new property can be very rewarding. Walking into a home smelling the freshly painted walls or admiring the stone surface of your new kitchen island bench are just a couple of things that make buying off the plan an amazing decision.

There are many reasons why buying off the plan is a great way to purchase a property, however in the market insight we’d like teach you some important points to consider in advance.

Thinking of buying off the plan? Learn the risks so you can appreciate the risk/return trade off

Buying off the plan can buy you more time. You can continue saving money for the purchase while you’re locking in a fixed price that will settle in the future. In a rising property market your property value can increase before settlement. However, there are some inherent risks in buying off the plan.

Here are a few to take note of:

  • A falling property market – Over the long term, the property market will increase in capital growth. However in the short term, property can experience down turns. It can be caused by economical or political circumstances that’s out of your control. Tighter lending policies, higher interest rates or an oversupply of property are just some reasons. If these situations occur, the property you’ve purchased off the plan may likely drop. This will mean the bank will not borrow the same amount if it was priced on contract. If the home was valued $20,000 less, the buyer will need to find the additional funds to settle the purchase.
  • Your personal and financial situation may change – When waiting for your property to be built, buyer may encounter personal or financial challenges. These can include, marriage breakdown, loss of employment or illness. These circumstances can cause you to be unable to settle your off the plan purchase.
  • The developer or builder doesn’t meet your expectations – Despite the efforts of a developer or builder aiming to construct a property in accordance to their marketing collateral, in some cases, you may feel disappointed with the end product. You may identify poor workmanship. A buyer may also be disappointed if the construction experiences delays. These delays may be out of a builders control, but if you are renting or expecting to be vacated by your landlord, this can create may challenges.: the property may not be finished to the standard you expect, construction may be delayed or, in a worst-case scenario, the build may be left unfinished (if the developer goes bankrupt, for example).

Understanding the contract of sale

When executing an off the plan purchase you’ll need to sign a contract of sale. They are very lengthy documents and contain some complex terms and conditions.

It’s very important to acknowledge that once sign, you are unconditionally bound by the contract to settle at a future date in time.

Obtaining legal advice from a solicitor experienced in off the plan property purchases will help you understand the agreement before signing.

Who is the builder and/or developer?

You may not personally know the builder or/developer, but doing some homework to identify their credibility and past work will help you assess if they are the right choice for you. One example may be an off the plan apartment. You want to know if the developer is financially sound to complete the construction while you’ll want to know if the builder has the experience to build a multi-development.

Additionally, consider whether or not you want to work with them. Are you able to amend the floor plan, can you upgrade some of the fixture and fittings? Can you select a colour scheme?

Will you receive any eligible government grants and concessions?

When buying off the plan one of the best incentives is receiving government grants. Depending on the ownership, you may receive substantial stamp duty concessions saving you up to tens of thousands of dollars. The Office of State Revenue has more information on this.

Have you assessed your personal financial circumstances before buying off the plan?

Before thinking of buying off the plan, it’s critical to understand you financial capacity. Knowing what your loan capacity will be, the loan repayments and property outgoings are important. Additionally, you’ll also need to find out if you have a sufficient property deposit too.

Establishing a cash flow budget will provide a good guideline in advance. Selecting the right property to meet your goals and objective is one thing, however buying it within your budget is entirely other matter.

Obtaining a loan pre-approval would be a very sensible approach. It will provide the necessary comfort to understanding what your budget is before committing to a purchase. A mortgage broker is an ideal person to speak to.

In summary

If you are thinking of buying off the plan, there are many great benefits to do so. While there are some risks when buying off the plan, being prepared, asking the right questions and seeking property advice from a buyers advocate will create many wonderful opportunities. There are some significant benefits buying off the plan. If you manage the risks, you’ll win the rewards.

If you are thinking of buying off the plan or want to learn more about it, please feel free to contact us. We would be delighted to help you make the right decision.

www.crestproperty.net.au

While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more please contact us. We welcome the opportunity to assist you.

November 2020

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