Is Buying Off The Plan A Good Idea?
The rise of new apartment developments in our cities provides greater opportunities for potential home owners to buy off the plan.
It starts with yhe developer
Developers, in order to mount a successful property development, have to achieve a high percentage of pre sales of the units or apartments before the bank will fully approve a development loan facility. This can often range from 50-65% of apartments pre-sold being required by the bank.
So in itself, off the plan sales are not a bad thing. They help bring housing online in areas that need further supply. There are a few exceptions where developers have overbuilt - Melbourne's Docklands and CBD are examples.
Other areas with more limited supply still remain attractive - think Hawthorn, Northcote, Manly, Randwick.
Benefits to the customer
There are benefits to the consumer from buying off the plan, but also a number of things to be mindful of. We look at some of the things to consider when buying off the plan.
A major benefit of purchasing off the plan is that you’ll own a brand new property. There are also financial benefits. For example, you’ll have the security of knowing how much you’ll pay for the property in the future, even if its value increases. Construction usually takes a year or two, so there’s time to save before you settle.
If you need to borrow money for the deposit, speak to your broker about how to best structure the purchase. Most home loan lenders won’t approve a loan for a long settlement period, but a broker can provide advice about what assurances you can get regarding the amount you may be able to borrow when it comes time to settle.
Depending on which state or territory you’re in, you may have access to stamp duty and tax concessions, or government grants. If you’re purchasing the property as an investment you may also be eligible for tax benefits. You should consult with your accountant for personal financial advice specific to your circumstances.
Things to look out for
Off-the-plan contracts try to cover future issues. Check that certain scenarios, such as construction delays or if you want to withdraw, are clearly addressed. Once the building is complete it might not meet your expectations. Speak to a legal advisor before signing the contract to avoid any surprises.
Find out whether the developer has taken out home warranty insurance. Depending on the relevant state or territory laws, builders may be required to include a certificate of insurance in the contract. Even if this isn’t the case, you can ask the developer for proof of insurance before you settle. Your broker or home loan lender may help with this as part of the lending process.
The property might be everything you dreamed of, but there’s always a risk the market may have changed by the time you settle. While you can’t avoid this, you should do some homework before you buy.
For example, look at properties being built in the area to work out if there’s likely to be an oversupply. Some lenders may look at the value of your property, rather than what was paid for it when considering how much they will lend you. It’s worth speaking to your broker about how your property may be valued and what your home loan options are.
SIZE MATTERS - THE 50 SQM RULE
Some smaller apartments or serviced apartments have less favourable loan terms from Australian lenders. The rule of thumb here is that if the size of the apartment is below 50 square meters, the main bank lenders may not be able to give you a loan. So, check the size of the apartment in the contract by looking at the floorplan.
By exercising a little due diligence you can minimise the risks and reap the benefits of buying off the plan.
Contact us to have a helpful conversation about what you are looking to do.
HOW WE SUPPORT CLIENTS
At Aspiire, we support clients with
- Buying off the plan and off-market properties
- Home Loans
- Investment Loans
- Debt Consolidation
- Commercial Loans
- Rapid Debt Reduction strategies