Here’s what you need to know when buying off-the-plan in NSW
As you will have seen in the news, there have been delays in the home building industry due to supply and transportation issues, and this has affected many building projects, including off-the-plan home projects. Understandably, many buyers are afraid to purchase off-the-plan due to the risks involved, but there are many benefits to buying off-the-plan.
We look at some of the benefits when you buy off-the-plan properties.
What does buying off-the-plan mean?
Buying “off-the-plan” means buying a property that is still under construction or not yet built. The buyer decides to buy based on the plans and designs, rather than the finished product, as well as information on the developer or project. It’s an attractive alternative for buyers who want to get their foot in the door or for savvy investors because off-the-plan properties are cheaper than a property already built. This is because properties generally increase in value over time, and if you buy the property now, you’re buying on today’s market value, not on its future value once it’s built.
Off-the-plan properties generally come in apartment units, or house and land packages. Buying an apartment off-the-plan is different from buying a house and land package off-the-plan in that when you buy a house and land package:
- You buy the land from the developer, requiring a 10% deposit, then
- You buy the house from the builder, requiring a 5% deposit.
This is known as a split contract, with two contracts for each purchase. Sometimes the developer and builder are the same entity, but sometimes not. The advantage of the house and land package is that land registration may still be a few months away (which means that the house build will not start until the land is registered with the local council).
One of the advantages of buying off-the-plan, particularly a house and land package, is significantly better value than buying an established property in the same area. This is because a newly built dwelling has fewer problems than an established property, and stamp duty tends to be more expensive with established homes (more on that below).
How does off-the-plan buying work?
Real estate agents and property developers commonly advertise off-the-plan properties to interested buyers. If you are interested in purchasing one, you will need a pre-approval from a mortgage provider and enter into a contract, just like you would normally do when buying an established property. You may need legal advice to understand the contract terms and the risks you are entering into.
You will also need to pay a small deposit. The good thing about buying off-the-plan property is that you don’t need as much up-front deposit to secure the contract. Sometimes only as little as 5% is required, and you have several months to save up the rest of the deposit. This is great for first-home buyers or investors who don’t have a big deposit saved up.
All house and land packages differ in what’s included, so it’s essential to read through the contract and understand what you are paying for. There are usually “standard inclusions” that are part of the package and “additional inclusions,” which you can choose to have and pay for on top of the purchase price.
The advantage of this is that you can design (depending on your budget) the kind of house you want to live in, as opposed to buying an established home where you can only work with what’s already there (unless you spend big on renovations).
What are the risks?
The main risks of buying an off-the-plan property are:
- Construction delays – which could increase the property’s cost and be an inconvenience if you need to find somewhere else to live while the property is under construction.
- Builder going bankrupt before the property has been constructed – you may not get your deposit back. It’s essential to read through the terms of the contract if this were to happen.
- Higher interest rates or changes to your income – interest rates are predicted to increase, so keep this in mind as this, together with any changes to your income, will mean your repayments and borrowing capacity will change.
- Lower property value – in rare instances, the property’s value may decrease once it’s built.
What are the benefits?
Despite these risks, there are also several benefits such as:
- Purchase price discount – builders usually offer early bird discounts for those who purchase much earlier in the project timeline.
- More time to save money – you’re usually required to pay a small upfront deposit and pay the rest at settlement once construction is finished. Because settlement is typically several months away, it gives you time to save more money which you could use to lessen your overall loan.
- Save on stamp duty – buying off-the-plan may reduce stamp duty. Your Conveyancer or solicitor will be able to confirm if you’re eligible for stamp duty savings. If you’re buying a home and land package and construction will not begin until some months down the track, you’ll only pay stamp duty on the land (not the building), which can save you thousands of dollars.
- Tax concessions for investors – if you’re an investor, you may be eligible for tax deductions from the depreciation of the property when buying off-the-plan. Your solicitor or tax agent will be able to advise you on this.
- Capital growth – in most cases, the value of the property increases over time, and by the time construction is completed, you’ll enjoy the increase in the value of your property.
Some tips
- Research the developer and make sure they’re reputable. With the building delays currently happening in the industry, some bigger developers are not as badly hit, so do your research thoroughly.
- Read your contract carefully and if possible, get legal advice. Look out for things such as sunset clauses* and if the contract provides for a process to fix any defects when the construction is completed. Find out from your lawyer what recourse is available to you if the builder becomes bankrupt before the construction is completed.
We have a range of affordable off-the-plan, built and ready to occupy homes, as well as home and land packages available for sale. Come and check them out and get your foot in the door of the property market today!
* A time limit on the contract where if a developer does not complete the build by a certain date, the contract becomes void, and the buyer will get their deposit back.
