Property developers who construct apartments/units, townhouses and freestanding homes often put their properties on for sale before they are finished, sometimes even before they begin constructing the project. This type of sale is known as ‘Off-The-Plan’, whereby buyers can purchase their brand new home in advance.
There are many advantages of buying off the plan, however first home buyers should also be aware of the potential risks that can arise. We discuss the pros and cons below.
Benefits of buying off the plan
- Government Incentives
First home buyers are only eligible for the First Home Owners Grant if they purchase a new property, either off the plan or a property that has never been lived in before. In some states, stamp duty concessions are also only available on new properties. Check your State for details.
- Low Initial Capital outlay
Buyers only have to pay a 10% deposit (in most cases, sometimes even less!) to secure the property, giving first home buyers the chance to organise their finances prior to settlement. It is also possible to cover the deposit of off the plan properties with a Deposit Bond.
- Brand New Feeling
Have you ever been fortunate enough to own a new car over buying a second hand car? Well owning a brand new home that no one has ever lived in is even better! Some people just love that feeling of something new that they can make their own. Did you know you can view over 400+ new developments with eligibility for the FHOG on our website? Click here to see what is available!
- Discounted/Locked in Price
In a Laissez Faire market, buyers are often able to purchase the property at a discounted price as you are paying the current market value of the property. Market conditions always change, so it not always a certainty that it may increase in value in the future.
- Tailored Dream Home
In most cases a buyer will get the opportunity to customise their off-the-plan home to meet their desired needs, especially when purchasing a House & Land Package. E.g. Making a bedroom size smaller, creating a larger living area, building an alfresco in the backyard etc. These customisations can sometimes be free of cost. It is usually more expensive customising your property once the construction is complete. Therefore is a good idea to customize your off-the-plan purchase when purchasing it, rather than doing expensive renovations a few years later!
Unlike established homes where the buyers are responsible for checking to make sure the property is structurally sound, most off-the-plan properties are required by law to include a 7 year structural warranty.
- Modern Living
Most new housing, whether that be apartments/townhouses or house & land estates are built to match the modern lifestyles. E.g. including Gyms, Pools and other amenities that buyers would have to spend money on elsewhere.
Cons of buying off the plan
Whilst you may be able to view what your new home will look like when viewing a display property, first home buyers should be aware that the display properties are usually the upgraded versions of the property, therefore it is a good idea to review the contract thoroughly. There is a risk of losing your deposit if a developer declares bankruptcy.
- Sunset Clause/Delays
Buyers are often concerned most about the “Sunset Clause”, which protects them if developers have run over time with construction of the development, in the majority of cases the projects are finished before the Sunset clause is activated. The big risk involved is if a developer does default on the sunset clause the first home buyer will get their deposit back whilst missing out on the potential price gains. Therefore it is a good idea to check a developer’s track record before signing the contract!
- Strata Levies
Most new developments (apartments and townhouses) come with higher Strata Levies which is your portion of the fees to cover the cost of management of the common areas such as lifts, gym, lobby etc..
As most home loan pre-approvals are only valid for a period of 3 months this can be an issue for first home buyers. As market conditions and bank lending criterion are always changing, the banks may not be willing to lend the same amount of LVR (Loan-To-Value-Ratio) if the valuations have changed since you exchanged the contract. Tip: Having a 20% deposit available at the time of settlement goes a long way in mitigating this risk!
- Paying a Premium to purchase new
When purchasing a new car you usually pay a significant premium to a car that has been driven out of the dealership. The same applies to homes, buyers may pay a premium for a new property to get all the new lifestyle features that an established home can’t offer.
- Increased Competition
As foreign investors are only able to purchase brand new properties, there may be greater competition when buying off the plan, as foreign investors tend to have higher purchasing power.
We hope our discussion above helps you decide if you want to buy off-the-plan. Please also remember to use the services of a Conveyancer when entering into an off the plan purchase.