Buying off the plan is becoming an increasingly popular choice for investors and first-time homeowners. Purchasing a property this way can often help you secure a great opportunity, but there are some things in off-the-plan contracts that are important to consider.
To help you decide if this may be the right purchase strategy for you, we've compiled a guide to off-the-plan contracts and explained the pros and cons of buying a home off-the-plan. Let's begin!
What Does Buying Off The Plan Mean?
Buying "off-the-plan" means purchasing a property that hasn't been built yet. This can be purchasing a house on a block of land that hasn't yet been subdivided or an apartment in a complex that is still being constructed. When buying off-the-plan, you cannot view the exact property you will be purchasing. You will only have the plan to go off on and will sign the contract of sale without seeing the finished product.
While buying off-the-plan can have many advantages, it also comes with certain risks and drawbacks. Understanding these benefits and pitfalls can help you negotiate with the developer to secure the best purchase price and lock in a great deal. We've covered the top pros and cons of buying off-the-plan below. For more details, read Westpac's guide on buying off-the-plan.
Pros of Buying Off The Plan
1. Lower Maintenance Costs
One of the major costs associated with being a homeowner is the constant need to repair and replace appliances, fixtures, and general housekeeping. However, when you purchase a brand-new property off-the-plan, it comes with brand-new installations, meaning you won't have to worry about maintenance for at least the first couple of years.
This can give you the peace of mind knowing that everything is in good working order, saving you thousands in maintenance costs and giving you the opportunity to save up and pay off your mortgage.
2. Smaller Deposit & More Time To Save
With off-the-plan contracts, usually a small first deposit is required. This is very helpful for first-time buyers, giving them extra time to build their savings and minimize their mortgage.
3. Your Property Can Increase In Value
If your property increases in value after signing your contract, you may be paying way less for your property than its worth.
4. Developer Incentives
Most developers offer great incentives for buying a property before construction has begun. These incentives can range from lower prices to furniture and facilities like gym memberships or access to sports complexes.
Paying a lower price for an off-the-plan property, in addition to receiving other incentives, can save you a lot of money compared to buying a home that has already been built.
5. Greater Input On Property Design
Another big advantage of buying off-the-plan is that you have greater input on the property design. You can engage with the developer to make alterations and additions prior to the build, meaning you get a say in building your dream home from scratch.
Just make sure you clarify how much input you can have in features of the property, such as soft furnishings, fixtures, paint color, and so on. And make sure to read this guide on 4 ways to create a colorful and creative home.
Cons of Buying Off The Plan
1. Construction Delays
One of the biggest risks with buying off-the-plan is construction delays. Your home could end up taking much longer to build or never be built if the project gets scrapped for one reason or another. If the property fails to be completed, your contract will fall through. You can get your full deposit back in most circumstances, but if the development company has gone bankrupt, getting your deposit back will be quite a challenge.
Construction delays can be avoided by reviewing the developer's history, and signing on with only reputable companies. You should also make sure your contract includes clear terms on what will happen if the project goes unfinished.
2. Unsatisfactory Finishing
It can be hard to envision what your home will look like based on maps and project plans. The finished product could live up to your every dream, but it could also be a disappointment.
3. The Property Could Decrease In Value
There is always the risk of your property decreasing in value before you move in. If the value of your neighborhood or other economic conditions drive down the value of your property, you may not end up getting the best returns on your investment.
4. Potential Structural Issues
When buying an already-constructed property, you are aware of the history of the building and any structural/construction issues it may have. However, buying a property before it has been constructed means that structural issues could arise after you've moved in or sold the property.
5. Bank Valuation Changes
Another risk is that lenders typically re-evaluate the property after its completion and settlement, which can change the amount of funds they're willing to give you. If the lender believes that the property has dropped in value or is not worth the purchase price, they may not offer the loan terms you need to complete the contract. In the worst-case scenario, you might have to arrange extra funds to meet the shortfall.
How To Protect Yourself As An Off-The-Plan Buyer
As buying off-the-plan comes with variable contracts and is open to greater risk, there are some precautions you should take if you plan on going down this route.
- Evaluate the credibility of the builder and choose one with a history of successful projects.
- Read the contract terms and conditions carefully before purchasing. If you're unsure about the terms, seek independent legal advice on contract documents.
- Research how changes in the local property market can impact the future value of your home.
- Ask if there are any construction warranties or maintenance agreements after the project's completion.
- Know when to seek assistance via your state, an independent attorney, or a financial advisor.
If you take all necessary precautions, understand the possible risks, and thoroughly research the market and developer, buying a property off-the-plan may be a great investment. It could make an excellent addition to your growing portfolio as an investor or might just turn out to be your dream first home!
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