Buying a property off the plan can be a tempting prospect, but there are pitfalls for the unwary. Here’s The New Daily guide to whether taking the plunge is right for you.
The competitive cost of buying a property off the plan can make it a very tempting prospect, especially in a sky-high real estate market.
Darryl Simms, real estate investment specialist at Latte Property, says that off-the-plan properties are “one of the easiest and cheapest ways” to become a home-owner.
Those considering taking the plunge, however, should take note: While buying such a property can work for some, there are pitfalls for the unwary.
… Off-the-plan properties are “one of the easiest and cheapest ways” to become a home-owner
The New Daily looks at both the benefits and the risks.
The temptations of buying off the plan
Off-the-plan properties can be discounted by five per cent or more, Mr Simms estimates. This is because developers are often under pressure from their financiers to sell a certain number of properties in a development before construction can begin.
Stamp duty discounts can be an added bonus, although these vary between states. (It’s be best to check with your State Revenue Office about what rules apply in your jurisdiction before making your purchase.)
“In Victoria, you’re only paying a small amount of stamp duty when you’re buying off the plan,” Mr Simms explains.
“For example, it might be around $5,000 or $6,000 instead of $20,000, because the stamp duty applies to the cost of the project [not] … the finished product.”
There are a number of additional upsides too: You’re likely to have first pick of the best units on offer; the value of your property could go up while it is being built; and the developer might even let you tinker with some elements of style and finish.
Of course, price should not be your sole concern. As with any investment, the question is whether it is right for you.
Mr Simms says that getting legal advice from someone experienced in off-the-plan purchases is paramount, as these contracts can be “fraught with danger”.
“The contracts can be quite onerous and they are obviously in favour of the developers,” he warns.
“You do need to be cautious and you need a conveyancer that is very switched on.”
NSW Fair Trading recommends that you find out if there are any penalties for cancelling your purchase, whether you are allowed to make any changes to the property, and what happens if construction is delayed.
You don’t know what you’re getting
Oliver Stier, director of Sydney-based buyers’ agency OH Property Group, says the biggest risk is that the final product is unknown.
Instead of being able to walk through your prospective home or investment property, you have to rely on architectural plans, project models and computer-generated images intended to catch your eye. As a result, there is a risk that the final product may not live up to your expectations.
“Buying off the plan means you’re buying something you can neither see nor touch,” Mr Stier cautions.
“You’re essentially buying a promise.”
When you’re buying off the plan, you can’t check the quality of the workmanship or finishes before you make your purchase. It’s also trickier for the non-architecturally inclined to get their head around practical details such as the depth of the kitchen cupboards, the width of hallways, the placement of light sockets and the position of electric power points when they’re working off a draftsman’s illustration.
At the mercy of the developer
It is crucial to pick a reputable developer with a proven track record, Mr Stier says.
Picking a developer based on their experience makes it less likely that mistakes will be made, and more likely that any problems will be rectified quickly, he adds.
Being selective could also reduce the likelihood of your developer going bankrupt before completion of the development or during the usual seven-year warranty period.
Buying off the plan means you’re buying something you can neither see nor touch
Defects in a property usually become apparent in the first five years – and if a developer declares bankruptcy in that time, it can be much more complicated to lodge a claim for the issues.
Have a back up plan
It pays to have a contingency plan in place should the development incur delays in its construction.
“Few developments are completed according to schedule,” Mr Stier says.
“You need to make sure that you will not be overly inconvenienced should this occur.”
Above article first appeared in The New Daily as result of interview with Darryl Simms
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