An Overview of Buying Property Off the Plan
We all know that buying a property, especially a property off the plan can be a very scary and daunting experience for many. So, to help you overcome your fears of buying a property off the plan we have put together a short video, “An overview of buying property off the plan” presented by our Head of Projects, Brent Backhouse to give you a more detailed insight into what this is all about.
Watch our video, “An overview of buying property off the plan” now to learn how buying property off the plan can actually be extremely rewarding and very beneficial.
What is “Off the Plan”?
Basically, “off the plan” is where something, in this case property has yet to be started, built or delivered. You cannot physically see the property and you cannot walk in or see it. You have to rely on floor plans, price lists, schedule of finishes and CGI images to fully understand the design layout and the finished quality of the property that you are looking to purchase.
Typically you require a 10% deposit to go through and reserve the property and get it off market once you’ve undertaken your contract.
Today, many people including first home buyers and investors are taking the opportunity to buy property off the plan and there are plenty of advantages of buying off the plan.
Advantages of buying property off the plan
1) Reduced price - Typically, developers need to get sales in quickly when they start a new project. This can be achieved in a number of ways, but the main way is through a reduced price. What the developers need to do is get a number of presales away so they can get their finance in place allowing them to get the development built. In return they offer lower prices than typically you’ll see in the marketing process throughout the build stage.
2) It’s brand new – A second advantage is that the property is brand new. No one else has lived here and you generally find better quality tenants moving in and paying a higher rent compared to an existing and or established property.
3) First choice of apartments- When you look at buying off the plan property, usually, depending on when you get in you have the first opportunity, certainly through iBuyNew in many cases to pick any property in any development that you like. However, you need to bear in mind that the first choice only comes at the start and once the project is under construction, you are limited to choosing the properties that are left over, which might not be the best apartments within the development.
4) Tax benefits - If you are buying a property off the plan as an investor you can use a property to reduce your taxable income. Negative gearing and depreciation are two of the major tax breaks as well as claiming costs such as legal fees, borrowing costs and water rates.
5) Stamp duty savings - You could also save thousands of dollars in stamp duty. This varies per state, but for NSW, you could save almost $18,000 depending if you are eligible for stamp duty savings.
Risks of buying property off the plan
With these benefits do come certain risks and it’s understanding what those risks could be that can see the success of a project or an investment or it could have a disastrous effect.
With iBuyNew we understand the industry extremely well. We’ve got years and years of experience within this industry and we know exactly what to look out for and highlight those risks to each and every client that comes through our door.
Here are our top 5 risks of buying property off the plan
1) Development might not go ahead – A development might not go ahead for a number of reasons. Plenty of developers certainly in Sydney have gone ahead and pre-sold projects without having a final development application approval in place. To mitigate this risk you really need to know who you’re dealing with, who the developer might be and look closely at their past projects and history of performance.
2) Property values can go up and down – Property values fluctuate day to day and year to year and this is completely normal and part of the property cycle. Certainly in a booming market like Sydney’s seen in the last 2012 through 2015 period, price growth was phenomenal. The risks of this include the property may fall off or you end up paying too much for your property at the peak of the cycle.
Understanding and dealing with an expert in this environment will really save you a lot of pain and understanding where the property cycle is in each area will give you the best opportunity for success.
3) Individual financial circumstances can change – Financial circumstances can change for numerous reasons. People have babies, people get married and redundancies unfortunately do occur. Understanding if you’ve got a planned event coming up like trying to get pregnant, getting married or a change of career can really change the outcome of your ability to attain finance at settlement time. It’s therefore extremely important that you talk to your property consultant to make sure that we’re matching the criteria that you’ve got to the investment opportunity available.
4) Interest rates - Interest rates are something that nobody can control. The banks have a difficult time with it, they just want to put them up, but at the moment we’ve got a fantastic environment of low rates. However interest rates might be low today, but by the time your property has settled they might have increased.
Understanding what your borrowing capacity is going forward and making sure whoever you’re dealing with is extremely important. You also need to ensure the professional has stress tested your borrowing capacity so that if interest rates have changed slightly you’re not finding yourself overstretched or over committed in an environment that you actually can’t complete on.
5) Finished product can change - The finished product sometimes in certain developments can change, compared to what you thought you were getting and in some instances development internal sizes can change. To mitigate this risk, you need to know exactly what the scope of change or amendments could be, what the outcome is, and how you can be protected. You should also carefully review your contract before signing.
At iBuyNew that’s exactly what we try and do for each and every client. We make sure we understand what the contractual obligations are and how we can best protect you.
To learn more about how we go about matching the best opportunity to each and every individual get in touch with us today on 1300 123 463.