Have you, your family or friends considered buying off-the-plan but been deterred by recent reports about shoddy builders? It’s not all doom and gloom, but if you’re heading down that path there are definite precautions you can take to reduce your risk.
With approximately 2.4 million Australians now living in apartment blocks (an upward trend over the last 25 years) it’s highly unlikely for us to expect that no one will ever purchase a property off-the-plan again.
Many continue to invest in apartments, even as the media continues to spruik the negative aspects of construction errors, building defects and the dangers of buying off the plan… so let’s shed some light on this topic.
While each buyer will have their own considerations – owner occupiers may focus on quality inclusions, size and bedrooms, first home buyers will consider price point and investors the rental yield – all must consider the pros and cons before committing to an off the plan purchase.
The Good Bits
More money in the bank: You will have time to save more money towards your future mortgage, buying costs and ongoing maintenance. We encourage our clients to continue to save as much as they possibly can during the build. When settlement rolls around, they will borrow less and have lower loan repayments.
Brand new condition: You are unlikely to have to spend money on repairs or maintenance in the short term. You should also save on the cost of utilities as the property should be far more energy efficient than older homes.
Stamp duty concessions: Some buyers, when buying off the plan, can apply for a stamp duty exemption or concession – check your state website.
Depreciation benefits: For investors, you can maximise your tax deductions through claiming depreciation on the property’s fixtures and fittings and building through a qualified quantity surveyor.
The Bad Bits
Time: Years ago, in a rising market, you had a good chance of taking advantage of increased capital growth while your property was being built. It’s not that easy in today’s market and financial restrictions.
Finance risk: Are you prepared to take the risk that your finance may not be approved at settlement? Given most lenders’ pre-approvals last 3-6 months, you will be taking a risk that your financial situation and the property market may not be satisfactory at settlement.
Lower valuation: You may be hoping your property will be worth more at completion, but the opposite can happen for two reasons: either property prices decline, or the banks value the completed property for less than the purchase price. The lender may not finance the full loan amount you agreed on leaving you to cover the gap yourself. If you are unable to raise the additional funds, you may not be able to settle on your new home. There may be a potential loss of the initial deposit if you are unable to settle and there can also be legal ramifications from the developer for not settling.
Delays: In most off-the-plan contracts there is a safety net for buyers called the sunset clause. It puts a time limit on the contract, so if there are delays and the property is not completed by a certain date, the contract could be voidable and the buyer’s deposit refunded. Recent amendments in some states of Australia to the Conveyancing Act state that a vendor will no longer be able to rely on a sunset clause to automatically rescind a contract for sale (with the hope to re-sell it for a higher price). The amendments were passed to protect consumers who purchase residential properties off-the-plan. But beware, different states have different rules!
Structural quality: With no physical property to inspect, buying off-the-plan means you won’t know the quality of the apartment until it is built.
The best way to reduce your risk? Make sure you do your research on the developer. Do they have a good track record? Do they deliver on time and use quality contractors? Have you inspected previous developments to see a finished product?
Ultimately, taking the time to research and investing in professional independent advice before signing up for an off-the-plan purchase is a small price to pay to help reduce your risk and secure your future wealth.
If you would like to explore your lending options for an off-the-plan purchase, or learn about the process in greater detail, call us on 9887 8751 or book an appointment online. so we can set you up with the expert team at Odyssey Financial.