Buying off the plan has been a favoured strategy of many Australian investors and homebuyers, particularly in a rising housing market.
After all, the upsides of buying off the plan can be enormous. You can lock in today’s prices, receive potential stamp duty savings, and have the chance for a capital gain without having to outlay all the cash up front. You also get the aesthetic advantages of being able to choose your apartment’s finishes.
So how does buying off the plan work?
When you buy off the plan, you secure the property by laying down a deposit, usually 10 percent of the purchase price, just as you would when buying an established residence. Some lenders will even allow you to use the equity in your own home to raise a deposit bond, which means you have minimal contribution up front.
The balance usually only becomes payable when the property is completed and you’re ready to move in.
If you use your own money for a deposit, your funds will be placed in a solicitor’s trust account to ensure they remain safe. Your deposit money will also accrue interest, which will usually be split between you and the vendor. This money can then also be used towards paying the balance when settlement day arrives.
The good news is that no matter what happens to the property market between now and settlement date, by buying off the plan you only pay today’s market rate. However, there is some chance that the market may fall in the time between you signing the contract and the time you take possession, so don’t overreach.
Each state or territory offers different incentives for buying off the plan. This includes a $15,000 grant for first home owners who buy a newly constructed residence off the plan in NSW, South Australia or Queensland (up to a threshold). It may also include generous stamp-duty concessions.
It’s a good idea to check your state or territory government website before you buy, as these incentives are liable to change.
Finally, since buying off the plan means you are investing in something you have not yet seen, you should always have a solicitor or conveyancer look through the contract for sale and make the right enquiries before you sign. You should also do your research on the developer. This includes establishing whether they have a track record for building quality apartments (check out their past developments in person if you can), as well as for rectifying defects.
Buying off the plan can be a great way to get into the property market as an investor or owner - giving you extra time to save while potentially delivering a number of benefits, including increased capital gain under the right market conditions. However, it is important you also mitigate against the risks of purchasing ‘sight unseen’ so that you give yourself the best possible chance of getting what you pay for.