Is buying off the plan safe?
When it comes to buying off the plan, it is essential that you do your thorough research first and know exactly what it is you are getting yourself into before you make a commitment. As you cannot physically see a property bought off the plan, due to the property yet to be built, or under construction, it is often thought that buying properties off the plan is not very safe.
We’ve all heard of the horror stories portrayed in the media of off the plan property purchases gone wrong. A development never proceeded, a two-bedroom apartment misses a bedroom or there is severe structural damage. However, properties bought off the plan is a safe investment approach, if done correctly and you use a reputable builder and team and these horror stories are very rare in comparison to the number of off the plan properties bought every year.
Like everything in life, there are risks to buying property off the plan, but as long as you are aware of these risks and mitigate these risks accordingly, then buying off the plan can be a very safe and successful investment.
Buying property off the plan offers you many advantages and also allows you to secure a property at today’s price and benefit from any price growth that can occur between now and settlement. It is a way to purchase a property more affordably, without having to pay a mortgage straight away and you can even enjoy some government incentives such as stamp duty concessions or the first home buyer grant if you are eligible.
Today, buying property off the plan is becoming more and more popular, so, before you go ahead and make a property purchase, here are some things you need to consider and be aware of first to ensure your off the plan property is a safe one.
1) Reputable builder
One of the things you need to research thoroughly is the developer. Find out about their past and current projects and whether they have completed projects on time. You can also research their level of craftsmanship, whilst you should definitely find out whether they have DA Approval as this will increase the likelihood of the development proceeding. At iBuyNew we work with hundreds of builders and developers across Australia and pride ourselves on working with reputable developers who deliver to schedule.
2) Good location
To ensure your off the plan property is a safe one, you should also consider the location and suburb that you intend to buy in. Ideally, you want to be close to public transport, key amenities and schools as this will attract rental tenants to live here. You should also buy in a suburb that has a low supply and high demand ratio with a high rental demand as this will make your property far more attractive.
3) Future growth
As well as researching the suburb, you should also take into account any future developments which could positively or negatively impact your investment property. The suburb might have plans to build a new train station which would benefit the local area, whilst plans for a plethora of new residential developments would mean you would face more competition from other property investors, which could see vacancy rates rise.
When buying off the plan property you should speak to a Mortgage Broker and work out how much you can comfortably afford to borrow. If you stretch your budget too far then you could see yourself in financial difficulty and be unable to pay off your mortgage repayments if interest rates were to rapidly rise. To help mitigate this risk and make this safer, you should create a solid plan and see how high interest rates need to rise before you are unable to pay off your loan.
5) Check the contract
Buying property off the plan is slightly different compared to buying an established property. It is therefore important that you use a reputable lawyer or conveyancer who is familiar with off the plan contracts. One of the things you should take note of is the sunset clause and the sunset date. A sunset date is the date that a developer must complete the property by, otherwise the contract may be rescinded without penalty by either party. Depending on the development size, this could be around 24-36 months after the contract is signed. If the contract is rescinded then you will get your money back, but you would have lost time in the market, so working with a reputable developer who already has DA Approval is beneficial to avoid this.
6) Property not what you expected
Due to properties yet to be built, as a buyer you are relying on floor plans, brochures and images to make your purchase decision. It is important to remember that the images are just an artist’s impression, so your finished property might not look exactly like the images in the glossy brochure. Sometimes there might be variations in terms of size, area or fittings and fixtures. Make sure you check the contract in advance to see what variations this covers.
7) Undervalued at settlement
Sometimes a property might come in at less than what you paid for it, which means you have to make up the difference from your savings, as you are unable to borrow more from your bank or lender. It is therefore important that you keep this in mind and have some savings available to make up the difference. However, to avoid this, a safer approach is to try to buy in a rising market, in an area that is undersupplied with high levels of demand.
One main issue that is being talked about a lot right now is the issue of oversupply of new apartments coming onto the market. Yes, there are some suburbs, particularly within the inner-ring region that are seeing plenty of construction right now and there are fears of oversupply. However, with the population on the rise, there is an increasing demand for new apartments. You can avoid this by purchasing property in a suburb that has lower levels of supply to demand. If the property is completed, and there is a lot of competition to go up against, then you might want to consider reducing your rent to make your property more attractive, helping you avoid periods of vacancy.
So to recap, buying off the plan is a safe approach, as long as you do your research first and buy comfortably within your budget. There is plenty to think about when buying property off the plan, but by using a good team and buying in the right location then you are more likely to be purchasing a safe and successful investment property.
You can buy property off the plan on your own, but this can often be a more stressful approach, and more often than not you do not have hands-on access to the most recent data and market research. Working with reputable Property Consultants like iBuyNew ensures you can benefit from all the latest information, whilst we are here to guide you through the property buying process with ease.
To find out more about buying off the plan safely, then our expert Property Consultants are here to assist you. We can help devise a plan and show you properties that suit your budget and goals to make a safe investment. Give us a call today on 1300 123 463 to find out more.