It’s easy to get excited about buying a new off the plan investment property. Glossy brochures, smart advertising and of course, the promise of a home or apartment that will be ready to produce income the day it settles. But just like any other type of property, an off the plan purchase should be approached with caution and special consideration given to the pros and cons.
Here we’ve compiled a list of advantages and disadvantages to buying off the plan. It’s important to note that both established investors and new-to-the-game buyers alike should first and foremost make sure they’re buying from a trusted developer. Companies such as Frasers and CBRE for example have a proven track record in Australia and understand where and how to build premium quality properties that’ll hold their value for years to come.
Generally buying an off the plan property only requires a 10% deposit up front. After that’s been paid and contracts have been signed, all that’s left is to wait until settlement. This can take anywhere from 6 months up to 1 year and beyond, depending on the size of the development and how long it takes all applications to be finalised by local councils. This extended settlement period is perfect since it gives you time to arrange your finances and takes some of the pressure off coughing up the balance not long after exchange.
With the rise of social media and online forums, finding out about a particular property developer is easier than ever. For more popular international and Australian based developers, you can even head to their corporate website and read for yourself about their track record. Not only does this hold developers accountable for their mistakes, but the improved transparency of major developers means you can find out everything you need to know to put any concerns to rest.
As an investor, any money you can save is money that can be put towards your next property. Luckily for you there are a number of grants available for buyers throughout Australia, depending on the state you’re located in. There’s also the opportunity to have a win if you can get in quickly and position yourself as one of the first buyers, as developers are often eager to sell as many off the plan contracts as possible, as quickly as possible. The best bet is to check out your state or territory’s government website and find out just how much you can claim back on an off the plan or brand new property purchase.
Currently, buyers purchasing a home they plan to live in off the plan (regardless of whether they are first home buyers or not) will still be entitled to a 12-month delay in the payment of stamp duty, deferring payment from 3 to 15 months after the date of the contract. This concession however will be closed to investors, as will the $5,000 New Home Grant Scheme, which was also available to investors. That’s not to say though these grants will be reintroduced in the near future.
If you’re looking at buying an investment property that’s 20, 10 or even five years old, chances are you’ll have to factor in maintenance costs to any offer make. A new or off the plan property bought from a major development firm however will not require any immediate spending on repairs. This is a huge bonus if you’re looking to get tenants into the property as soon as it settles.
If you rush into buying an off the plan or development property, you may find that by the time it has settled the market has dropped and you’ve overpaid. While this isn’t a major concern in Australia given our historically strong and relatively predictable property market, it is something to consider when looking for an investment. We suggest doing your research and finding out if there are more properties going up in the area. This way you can avoid losing money due to oversupply if you do decide to sell in the near future.
For most first time investors, your expectations of how the final build will appear won’t match up to reality. While this may seem like a key issue, there really is no cause for concern.
If you purchased the property months or even a year prior, it’s only natural to conjure up an idealised image of what the end result will look like. It’s important to maintain a sense of perspective and conduct regular inspections to see how things are progressing. And remember, the concept drawings and subsequent marketing material given out to buyers are exactly that – concepts. As long as it meets standards for quality and all of your requests have been integrated into the build, you’ll be in a position to rent it immediately upon settlement.
Another drawback to buying an off the plan property relating to the timeframe between exchange and settlement is the risk that interest rates may rise in the mean time. This may only be a problem however if the development encounters unforeseen issues and is drawn out for longer than expected and you’re required to take out another mortgage.
It’s nonetheless another factor to consider when purchasing an investment property from a developer. Only buying from an established developer with a verifiably sound record for completing projects on time such as CBRE or Frasers is one way to mitigate this hazard.
We strongly suggest you to do you research. Take your time. Enquire on lots of properties, but never feel stressed or pressured to buy.
At the very least
1. Decide on the factors you are using to choose
2. Create a shortlist
3. Apply objective black and white reasoning to your choice
Our current pick in the Sydney market is Centrale. 5% deposit. In booming area of Sydney. Built by Frasers. Obviously, do your research, but in our assessment this build is priced well, and very likely to go upward. Link is below if you would like more information.