Traps to avoid when buying off the plan

In a recent Real Estate Talk show, we get some advice on traps you should avoid if you choose to buy ‘off the plan’.

According to Rachel Barnes, from Investor Friendly Agents, buyers are frequently drawn to buying off the plan by the promise of a great investment and some slick marketing.

She advises buyer beware when purchasing these properties.


Kevin:  More Australians are opting to live in apartments, and there are a lot of reasons for that, of course.Rachel Barnes

There are budgetary reasons, but there are also lifestyle reasons.

Many people are drawn to the glossy brochures of the new developments, wanting to get into a brand-new apartment, but there are some things you need to consider if you’re going to be buying off the plan and many people will warn you not to do it.

Rachel Barnes is a market commentator and I’m keen to get her take on this, on what advice she’d be giving to people who are considering buying off the plan?

Rachel:  Thanks, Kevin. I’d say buyer beware basically – whether you’re an owner-occupier or you’re going to be an investor.

Generally, I deal with investors, so that’s where a lot of my feedback comes from.

One of the things I find is that first of all, there’s a price that you’re getting in at, because it depends how you’re buying the property.

If you’re buying direct from a developer, it’s normally not quite so bad, but there are a lot of people in between these days, and it’s that in-between where you can pay anything up to at least $50,000 extra for a property than if you had gone direct.

There are a lot of commissions to be made for people in this type of environment.

Kevin:  Is it a matter of doing your homework and make sure that you’re not going to be paying over the odds, even if it is new and nice and bright and shiny?

Rachel:  That’s the thing.

If you’re an owner-occupier and even an investor, sometimes you get a bit emotionally attached because of those brochures.

But let’s get back to the facts.

The fact is if you’re buying an apartment, you have to firstly be careful of how much you’re paying, as you say.

That’s going to be one of the key things.

Secondly, what’s going to happen with that property?

What are the body corporate fees going to be?

Who’s going to be managing that?

What’s the cost involved in that?

Is there going to be a sinking fund?

You need to know all those sorts of details.

On top of all that financially, if it’s investors, for example, and you’re going into it with, say, 50 other people who are going to be buying at the same time, how many people are going to be putting their property on the same rental market as you?

You’re going to be competing basically on price, because there’ll be no difference in other parts of that complex.

Kevin:  By definition, buying off the plan means you’re buying off a plan.

In other words, it hasn’t been constructed at that time, and you have to take at face value a lot of the assurances given to you by the developer as to what the finishes are going to be like, as well.

I’ve seen a lot of people come unstuck in that area, Rachel.

apartment house keys cityRachel:  Absolutely. Remember, what you see in a glossy brochure is just the artist’s impression.

What you actually get can be completely different. That’s where it’s sometimes a lot safer to look at something that’s existing, because you know what you’re getting.

When it’s off the plan, the developer could go bad; they could cut back on some things that they hadn’t intended to or that they did intend to, which is even worse.

You never really know who you’re going to get or what you’re going to get.

You have no idea what your neighbors are going to be like, and that can be a huge concern sometimes.

Kevin:  I do feel sorry for people who look at developments, have absolutely fallen in love with it, and have made the decision to buy it.

What are some of the things that they can do to make sure that they’re not falling into any of these traps?

Rachel:  One is just to confirm with the person who’s selling it to you, are they a seller’s agent?

Are they getting sales commissions?

Let’s get some transparency here. Exactly how much are they making on this deal?

Because some of them don’t have to tell you, and they’ll just say they’re receiving commission.

You want to know exactly how much.

computer house plan

If you can talk to the developer, that’s even better, or find out – through perhaps RP Data – what’s been sold in that area so you get a bit of an idea about whether that’s going to be a reasonable price.

Doing your due diligence on the area is going to be crucial, as well.

 Just to give you an idea, I know some overseas investors pay a price for an apartment that may be inflated even five years down the track, because they don’t know what they’re buying, and they don’t know what the comparison sale would be in that area.

Have a look around and see where they’re up to in comparison with where they should be.

Find out more about the developer’s history.

Have they done a lot of developments?

Have they got some good groundwork behind them? Are they reputable?

That’s some of the due diligence you can do even before the property’s been built.

Kevin:  Rachel, thank you for your advice, and we’ll talk to you again soon.

Rachel:  Fabulous. Thanks, Kevin.


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Australia's leading independent property commentator, brings together leading authorities on the property market. Each week at Real Estate Talk we take a fresh look at the property market so you get all the facts to help you make the right choice.

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