A beginner’s guide to buying off the plan

We all know that Sydney has stolen all the property headlines over recent years, but there has been another big news story happening at the same time.

What is it?  

It's buying off the plan – and buying new units in particular.

Our property markets are changing, from one where the Great Australia Dream revolved around buying a house, to one where more and more people are planning for apartment living.

In Sydney, as our most populous city, more new apartments than houses have been built since the early 1990s.

But that only started to happen in Melbourne and Brisbane over the past few years, and it's unlikely to go back to the way it used to be.

There is a myriad of reasons why our nation is moving into a country of more apartment-dwellers (like so many others around the globe) - including population growth, more single households, fewer children as well as affordability considerations.

But buying off-the-plan can be more complicated than buying an established house or unit.

So, let's take a look at the buying off the plan process to understand all the pros and all the cons.

The benefits of buying off the plan

Everyone likes new stuff, don't they? 

Whether it's a new car, new shoes or a new property, there is something alluring about being the very first owner of something.

It's shiny and new, without any wear and tear whatsoever.

And that is one of the major benefits of buying off the plan – you will become the proud owner of a brand-new house or apartment.

Owning a new rental property brings with it numerous advantages, including:

• Tenants are generally attracted to new properties
• You can usually charge a higher rent because of its newness and mod cons
• There are ample depreciation benefits
• Various exemptions on stamp duty, as well as grants, exist for first homebuyers specifically of new properties across the country.

The risks of buying off the plan

So, there are a number of benefits with the buying off the plan process, but there are some risks as well.

One of the major buying off the plan risks can be settlement risk, which is an issue that is currently in the news.

That's because the off the plan settlement process involves paying for the property months and years after you have signed the sales contract.

While the property market is generally a slow-moving beast, outside intervention can change the goalposts rapidly such as the recent APRA changes recent APRA changes .

Also, because apartment buildings take many years from approval to completion, the market can go from being normal to oversupplied in that period of time.

And the price that you agreed to pay on the contract may not be the official "value" some two or more years later.

And guess what?

You still have to settle, which often means you either have to come up with the shortfall or you attempt to sell before settlement. 

Either way, you can wind up wearing the loss because of the change in the market from when you first bought the property to when it was finally finished.

Another risk is one of quality.

The best way to describe this is… have you ever bought some clothing online and when it arrives it's nothing like the pictures?

It’s exactly the same with the buying off the plan process.

Those pretty pictures of what your new property is supposed to look like might not be entirely representative of the end product – although there is legislation to protect consumers in this regard.

Another buying off the plan risk is that the builder and developer might go bust during the construction process and it can be tricky to get your deposit back.

Questions to ask before you sign the contract

There a number of questions to ask when buying off the plan – and especially before you sign the contract!

The contract itself can seem a little daunting because it is usually just larger than a more traditional sales contract. 

That's because, of course, not only are you signing a contract to buy a property, you're also signing a building contract, too.

Ensuring you have legal advice before you sign the contract is vital, so it's a good idea to have your legal representative review the contract before signing.

Not only will they check that the builder or developer is committing to construct what you've verbally agreed on during the buying off the plan process, they can also double-check the finer details.

An example of a lawyer's vital role was the contract of one off the plan buyer, where the building plans didn't reflect what the purchaser believed they were buying.

In fact, what was supposed to be a 20 square metre outdoor area was not shown in the plans at all.

While it was an oversight, if they had signed the contract, it would have been more difficult for them to get what they thought they were paying for.

Before signing an off the plan contract, other questions to ask include: 

• Will the property look exactly like these illustrations or this display suite, including finishes and colour scheme?
• When is the expected completion date of the project?
• What happens to my 10 per cent deposit?
• How much will the strata or body corporate fees be?
• What is a rental guarantee?

About Andrew Mirams Andrew is a leading finance specialist who holds a Diploma of Financial Planning (Financial Services). With over 32 years of experience in finance, Andrew has been acknowledged by the mortgage industry with multiple awards. Visit IntuitiveFinance.Com.Au