Article by Kaylah Chesson. This article was originally published on ibuildnew.com.au and has been republished here with permission.
As the name suggests, buying off the plan means to purchase a property that hasn’t yet been built. Thanks to new 3D virtual reality technology and increased affordability, this residential housing choice is becoming increasingly popular with owner-occupiers and investors alike! The main drawcard for making an off the plan purchase is the greater potential for growth and profitability that comes hand-in-hand with buying at a land price before the property is even built. While this is definitely a key incentive, it’s important buyers understand the whole process or risk losing thousands of dollars down the track.
To help you on this journey, we’ve listed the top 10 questions you need to ask when buying off the plan…
1. What does ‘off the plan’ mean?
An off the plan property is one which has yet to be built or which is under construction. This means you are reliant on provided floor plans, price lists and other related documents when making your purchasing decision.
2. Why should I buy this way?
There are many advantages to buying this way, but the main draw cards are that it’s more affordable than purchasing an established house and there’s a number of tax benefits available for investors. Not only do property prices also tend to increase over time, but you can also benefit from capital growth since you’re often waiting a year or more for completion.
3. How much deposit is needed?
A 10% deposit is usually required to secure the property and can be paid via cash, bank guarantee or even a deposit bond if certified. Your deposit will be securely held in a solicitor’s trust account until the completion of the project or the expiration of the sunset period.
4. When is settlement?
Settlement varies with each project and is largely dependent on the size of the development. A bigger development, as with an apartment complex, can take significantly longer due to the construction of communal facilities such as a pool, rooftop garden and landscaping. When the project is completed, the remaining balance of the purchase price is required to be paid.
5. What tax benefits are there?
If you are buying off the plan as an investor, then depreciation and negative gearing are two key tax benefits to be familiar with. Depreciation savings are highest during the first year when you are able to claim on the property, as well as the fittings and fixtures, such as appliances, blinds and carpet. Engage the services of a reputable quantity surveyor to develop a tailored depreciation schedule for you and ensure you’re saving as much as possible!
For those on a higher salary, negative gearing is especially important. This occurs when you have a shortfall where your rent does not cover mortgage costs and you’re often required to make up the difference out of your own pocket. This shortfall can be claimed against your tax return throughout the year from each pay or at the year’s end.
6. Are there any incentives?
There are at least two unique incentives on offer here which aren’t available when purchasing an established property. First home buyers, for instance, may be eligible to receive a grant of up to $10,000 from their State Revenue Office under the Australian Government’s First Home Owner Scheme. You can also save thousands of dollars on stamp duty so ensure to check in with your local state government. Read our article on Homebuilder and Homebuyer grants and incentives by state to see what you might be eligible for.
7. When is the best time to buy?
There is no real best time when it comes to purchasing off the plan, but it pays to be aware of market trends and to capitalise on growth before the peak of the cycle. Ultimately, if you have the necessary funds, then now is the best time to buy. The longer you hesitate, the more prices will increase and the harder it becomes to get a foothold on the property ladder.
8. Where is the best place to buy?
Location plays a huge role in the growth potential of a property and can lead to huge rewards when buying off the plan! Remember the age-old criteria: properties close to public transport facilities, local stores, cafes and schools. Everyone craves convenience at their doorstep, so bear these factors in mind when choosing where to buy.
9. What is the sunset clause?
The sunset clause refers to the date by which the project needs to be completed. This serves to protect both parties by allowing the buyer to either recoup their full deposit or draw up new contracts if the project cannot be finished within the specified timeframe.
10. What about market fluctuations?
Given interest rates will inevitably ebb and flow as your property is being constructed, it’s crucial to keep in mind that the contract will stipulate an obligation to settle. To help mitigate risk, you may want to consider fixing your interest rate to avoid undue stress and financial strain. Just remember the downside to this decision: you don’t get to enjoy the benefits of a lower interest rate if the market drops!
Need help getting started? iBuyNew can help. If you are looking for apartments, townhouses or house and land packages, our experienced property consultants, will help you find something to suit your needs and requirements.