May 8, 2018 - Noel Jones

Stamp duty savings, a custom home, the latest in design trends and the promise of a new build. Sounds too good to be true? Not necessarily. Buying off the plan can be a beneficial way of purchasing property, however only when the ‘tricks of the trade’ are identified and carefully managed.

Whether it’s a family home in a new estate or a slick apartment in the heart of the CBD, “buying off the plan” means purchasing a property that is yet to be completely built. A deposit, typically 10% of the purchase price is paid and a contract signed based on building plans provided by the developer or developer’s agent. Unless the property is purchased at auction or the contract specifies otherwise, there is a three business day ‘cooling off period’, however, this does not come without a cost. The seller may charge you 2% of the purchase price.

If you are considering buying off the plan, here are some pros and cons to consider.

The ‘dream’ and what to keep in your sights

Potential savings

When buying off the plan you may be eligible for the ‘Off-the-plan sales concession**’ which applies to purchases of land and building packages or refurbished lots and allows a deduction from the contract price of the cost of construction or refurbishment which occurs on or after the contract date. This concession is available to all homebuyers (not just first homeowners) whose property is valued up to $550,000 and who:

Start using the property as their principal place of residence within 12 months of becoming entitled to possession of the property (which usually occurs at settlement), and
Live in the property for a continuous period of at least 12 months.

Please visit the State Revenue Office Victoria website for full details on this concession.

A personalised home

Most developers offer the benefit of choosing your own colour schemes, fittings and layouts. This allows you to select a home that is suited to your needs rather than settling for something that has been built for the masses.

A long settlement

Generally speaking, there will be a longer settlement when purchasing off the plan compared to buying something that is already built. This gives you the option to either invest your funds elsewhere during this period or save and improve your financial position before settlement.

Potential capital gain benefits

This is the difference between what it costs to acquire an asset and what is realised upon sale. Although property cycles experience peaks and troughs, there is typically an upward trend over time, so securing a price with a long settlement may offer the opportunity to reap the benefits of capital appreciation over the construction period, without outlaying the full purchase price. This is especially true in rising markets.

The ‘tricks’ and what to look out for

The fine print

Some contracts are inches thick with special conditions that may be confusing or unclear to the average person. Identifying potential issues before you sign will help to avoid future woes and ensure you don’t end up with the developer changing the quality of fixtures and fittings without your permission or walking away with your deposit if the build doesn’t proceed. If you’re unsure about any part of the contract, you should get advice from a trusted industry source, a solicitor or a property conveyancer.

Delayed settlement

A delayed build may incur unexpected financial costs particularly if you have to continue to pay rent or stay in your current home for longer than planned. If purchasing off the plan for an investment, these time and income delays can play havoc with other financial plans and assets.

Developer risk

Not all property developers are financially secure so checking their credentials, visiting their completed developments and investigating any former complaints or testimonials should give you peace of mind and minimise risk.

‘To buy off the plan, or not to buy?’ That is the question. As with any decision, an informed one is the best one so do your homework and if in doubt engage a professional to go over the fine print with you so your property dream doesn’t turn into a property nightmare.

* https://stampduty.calculatorsaustralia.com.au/stamp-duty-victoria (First home buyers may eligible for a reduced stamp duty rate)
** https://www.sro.vic.gov.au/node/1383

The ‘dream’ and what to keep in your sights

The ‘tricks’ and what to look out for

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