How Does Buying a Property Off-the-Plan Differ from Buying an Existing Home?
With the current housing market boom, buyers have to become strategic and innovative in their strategy to buy a property. Some buyers are taking building inspectors with them to viewings so that they can put down an offer on the spot, some are forgoing clauses to make themselves more appealing to the seller, and some are going non-conditional on their offer. Some buyers are taking an alternative route altogether and attempting to seek out an off-the-plan property for sale.
An off-the-plan property has some similarities to buying a standard home and many differences you’ll need to be aware of if you choose to go down that route. As with any massive purchase, you’ll need to weigh the pros and cons before signing any contract carefully. We’ll outline the overview of the positives and negatives of buying off-the-plan but, remember, each contract can hold further clauses that may affect your specific purchase. Jim’s Conveyancing is a team of experienced professional conveyancers in Melbourne and Brisbane. They’ll be able to help you with your purchase, including combing through all legal documents carefully to make sure you’re the property you buy has no nasty surprises down the track.
What is an off-the-plan property?
An off-the-plan property is a house that is currently under construction or even one that hasn’t started being built yet. Your offer is based on the buildings plans or the designs, rather than an inspection of the completed property.
What are the benefits of buying an off-the-plan property?
Buying a house that is yet to be built may be more affordable than an already existing home. Especially if it is an investment lot, your seller may offer you a price lower than market value if you buy it based on the designs. The designs themselves are another potential pro – this is dependent on the nature of the seller and builders, but if you buy in early enough, you could maybe have some input into elements of the home. Almost like a custom build!
You also will have more time to save money – although you’ll maybe have to pay the deposit when signing the contract, other fees like stamp duty, settlement fees, etc., will not be liable until the build is complete and you’re ready to collect the keys. This allows you the security of having your own home purchased but the extra time to continue building up your savings. If your seller does not make you pay the deposit upfront, these savings would be increased even further with continual interest on your lump deposit sum.
Buying an off-the-plan property also opens you up to stamp duty concessions, and the First Home buyers grant from the government. The requirements to be eligible for this vary by state and state but mainly focus on the house’s value, which your property cannot exceed. Being accepted for this and having that extra helping hand is hugely beneficial for your debut onto the property ladder.
What are the negatives of buying an off-the-plan property?
Just as there are positives, there are also downfalls to buying a house that has not yet been built, as well as the potential for more significant setbacks along the way.
One glaring one is, of course, that it’s hard to get a crystal-clear vision of what the finished house will look like from the designs alone. When your home is finished, you may find yourself being disappointed by aspects of it, even turned off by features that would have stopped you from buying it would it have been an inspection of a finished house.
When buying an off-the-plan house, you don’t expect it straight away, but there may be additional construction delays that drag it out from a six month to a 12-month wait, or even longer! Throughout the pandemic, builders have struggled with shortages of supplies, potentially affecting the estimated timeline for your home.
Then there are financial and contractual possible negatives. These points should really drive the point about how crucial it is to have a professional on your side that’s knowledgeable about property law. Jim’s Property Conveyancing team deals with hundreds of properties and contracts weekly, including off-the-plan deals. While they may not be able to save you from all of the possible issues, they’ll be able to give you the best chances available and will be able to explain to you any possible problems thoroughly.
One potential disaster, for example, is if the investor or builder goes bankrupt during the construction of your house. Depending on the terms of your contract, you have the potential to lose out on your entire deposit!
Other possible downfalls could be changes in interest rates, causing you to find yourself in a worse financial situation than initially planned.
Loan to value ratio
The market is currently fluctuating; the value of your off-the-plan property may change from when you initially signed onto it. This can have either a positive or negative impact on you.
Your loan to value ratio, or LVR, is basically the amount you borrow from the bank according to your property cost. The larger your deposit (usually between 5-20%), the lower your LVR. For example, if you’re buying a $500,000 house with a $100,000 deposit, your LVR would be 80%. You want your LVR to be as low as possible, as this means you owe less money to the bank, and your interest payments will be lower.
The good news would be if the value goes up – this means your loan to value ratio, LVR, goes down! The money you’ve borrowed from the bank is now for a smaller portion of the overall house value, which is excellent for you. The flip-side to this is if your property value goes down whilst your house is being built. This will increase your LVR, which is not ideal.
What are other things to know about an off-the-plan property?
- Buying an apartment off-the-plan will be slightly different to purchasing a house. With apartments, there will be additional body corporate/strata costs involved.
- Buying off-the-plan also means different things in different states. In Melbourne, developers are restricted from only using a sunset clause with written consent from the Supreme court or the buyer. In Sydney, there are also additional clauses passed by the Conveyancing Agreement to help protect the buyers.
- Before you sign the contract, find out how you would go about getting the builder or developer to fix any defects the property may have.
- Spend a decent amount of time researching your builder and developer to see if they have a good reputation or know if they have had any complaints brought against them in the past.
- If you’re planning to buy the property as an investment, investigate the tax benefits that you can get from buying off-the-plan – check this with a tax expert or accountant, as property tax can get very complex! Also, work with a property conveyancer to see how your property may be affected by renting clauses or resale restrictions.
- Consider the little things – what brands of fixtures (lights, air conditioning, kitchen appliances) will be used in the house? Are they a reputable brand, and are they environmentally friendly? Are you able to have a say in which type of appliances is installed?
Some Points:
It’s crucial to understand the role of a conveyancer and their fees. If you’re unsure, don’t hesitate to ask a conveyancing company for information. Conveyancers handle various tasks, so there’s much to learn about what they do. Understanding the concept of conveyancing itself is important. Jims provides Property Conveyancing in Brisbane offering quality services. Similarly, if you’re in Melbourne, we also provide property conveyancing services in melbourne for a smooth and efficient process. Some people may wonder if they need a conveyancer when buying a house in Australia, and it’s also essential to know how to choose the right one for your needs
FAQs
Is it worth buying off the plan?
Buying off the plan can be worth it for those who value flexibility and independence in choosing their mobile carrier and plan. It allows you to avoid long-term contracts and potential carrier restrictions, but it often involves a higher initial cost for the phone itself.
Do you pay stamp duty when buying off the plan in Victoria?
Yes, you may be required to pay stamp duty when buying off the plan in Victoria, Australia. Stamp duty is typically calculated based on the dutiable value of the property, including the land and any improvements, and it is a government tax that applies to property transactions.
How does buying off the plan work Australia?
Buying off the plan in Australia involves purchasing a property before it is completed, typically during the planning or construction phase. Buyers sign a contract and pay a deposit, with the final payment due upon completion. This approach allows buyers to secure a property at today’s price, but they may need to wait for construction to finish before taking possession of the property.
Is buying off the plan risky?
Buying off the plan can be risky due to uncertainties associated with construction delays, changes in market conditions, or potential differences between the promised and delivered product.
