Buying any real estate that is off the plan means you have to commit to buying a property that has not been built yet. For the property investors and the potential homeowners buying off the plan can be more flexible and affordable than buying an already established home. Although an inexpensive option, it does come with its own set of considerations.
Here are some things that you need to think about when it comes to deciding whether buying off the plan is the right thing for you to do be doing.
Are there benefits to buying off the plan?
The purchasing plan can be compared less with that on an established property as the developers often give out financial incentives and lower prices early on in the game to secure the plan, most often before the construction even starts.
Real Estate developers have various House and Land packages in Melbourne and across Australia that can satisfy different needs of different buyers. You only need to pay the one deposit to the developer, and then you need to pay the remaining amount when the building has been completed. Doing it like this allows you more time to save before everything is settled and the property is finalised. Even before the property is complete, the value may increase, which will give you capital growth. There is more tax depreciation available on those new properties and will allow you to maximise the advantages and improve the after-tax cash comeback.
Getting involved in buying off the plan as early as possible will give you more ability to customise the property to your liking, like choosing the floor plan and the final finishes. It will depend on the state laws, but you will most likely be protected by the building warranty insurance. At the same time, since the construction is underway if faults emerge within the set timeframe, they will need to be fully repaired by the builder. In different areas, you can claim concession or exemptions on the stamp duty along with certain tax deductions that apply to some property investors.
Before buying off the plan, you need to consider the following:
New home designs need to be impeccable since wrong or faulty design plans can completely ruin the property and impact its market value. Also, one can plan and plan, but the final product won’t be known until the building is fully built and completed. There have been times where the development does not go ahead. In this case, you should get the deposit back, but you may miss out on the interest and the capital gains through the other investments. Things can get delayed, which can tie up your money. Look in the contract for the sunset clause and check out how long the developer has to finish the construction.
Some lenders and banks may offer finance in principle for the purchases that are off the plan before the construction commences. Still, they may refuse to loan you money until the property has been built and a valuation has been carried out with your financial situation being re-evaluated.
If there is a change in your financial situation, then your ability to service the loan can be hampered, or resell can be impacted if the market falls or the rate of the interest between when you agreed to buy and when you purchased the property changes. There is AFCA which is giving financial aids to people who are financially in trouble due to the pandemic.
You will also need to consider a conveyancer who will go through the contract closely and look for any conditions or costs that can affect you down the track.