Buying Off The Plan
Property investors aim to purchase property at below-market value, rent it out for above-market value, and seek to capitalise on compound growth of their investment. Owner occupiers however have a different set of criteria when purchasing a property. They seek a place to be visually appealing, practical for their work and lifestyle requirements, and possessing of a comforting home feel.
For these reasons, buying off the plan is probably more desirable for investors than owner occupiers. It is hard to identify if a place is ideal when it is a blueprint, council plan or an artist’s impression. All that can be realistically considered is whether or not the financial projections are favourable, how likely the developers are to deliver on their promises, and whether the contract conditions are beneficial for your situation.
The sales pitch
Developers can find themselves hard pressed when trying to sell properties off the plan. They need you to help them cover their up-front financial requirements and help ensure the project is a success. For this reason, the early stages of a development can be quite financially beneficial for purchasers, due to the first-released properties usually being the cheapest, because the developers need quick, early sales. Once the initial financial requirements are met, the asking price on the remaining properties is generally raised to cover the lowered profit margins at the start.
Locking in a price today for equity tomorrow
An off the plan purchase means you can lock in the ownership of a property, without having to settle the purchase for an extended period of time. It may be one or two years before settlement, so capital growth can potentially make the initial deposit more valuable in the meantime. However there is also risk that the value may decrease over the time period, so it is important to be sure about the area, not just the property. If you intend to hold the property long term, value fluctuations in the immediate future may not be overly concerning.
Benefits of the extended time
The long settlement period means you have an extended time period to take care of the investment, or to organise to move if you intend to be an owner-occupier. You can also use the time to save money and reduce the amount of financing required.
State and territory governments currently are offering incentives on new properties. Most provide stamp duty concessions for new properties, attempting to stimulate their economies through construction. The NSW government has also replaced the $7,000 first home owner’s grant with a $15,000 bonus for purchasers of brand new properties.
Getting in early allows purchasers a wider spectrum of options from a larger range of properties within the development. Views can be selected, or frontage to a street can be chosen. This capability within one complex is usually lost when buying an established property.
The benefits show that buying off the plan can be a strategy that works for many investors. However, regular research still needs to be undertaken to ensure that the numbers are reasonable, including finance, return, growth potential, gearing, and depreciation benefits. In addition, the complex nature of an off the plan purchase means you should conduct a range of other checks to ensure the investment runs as smoothly as planned.
There are a few things that you should check before exchanging an off the plan property
Buying off the plan involves signing an off the plan contract of sale, which is drafted and tailored quite differently to a normal contract. Property law experts recommend that before signing, legal advice from a contract and property law professional should be sought. A number of factors should have their specifics confirmed.
Adequate plan disclosure
An off the plan contract provides you with plans and specifications of what the developer intends to construct as the finished product. Usually, you will be given proposed plans yet to be approved by local council of the entire project, in addition to proposed floor plans of the particular property you have chosen, plus read more>>