Pros and cons of buying off-the-plan

When you buy a home, you usually choose between purchasing an established property or building one from scratch. Both options pose unique challenges. If you decide to house hunt, you may be disappointed by the lack of houses that fit your criteria. Meanwhile, constructing a home means deciding every little detail which can be tedious, tiring, and expensive. 

For those who don’t think either option is suitable, buying off the plan may be your best bet. But what is an ‘off the plan’ property? Basically, it’s a home that you buy from a developer before it’s built. You simply choose a home design package, complete with floor plan and renders, and sign an agreement with the contractor before they build the house. 

Here’s a quick overview of buying off the plan's pros and cons to help you decide if it’s right for you: 

Pros of buying off the plan 

The benefits of buying off the plan include: 

Purchase price discounts 

Some developers offer early bird discounts with their off the plan packages. This means if you get in early enough, you may be offered a discounted purchase price on the property. Developers also offer discounts when they’re desperate to move stock or close to filling out the planned neighbourhood. 

More time to save 

When you’re buying off the plan, you don’t have to pay the entire home purchase price upfront. The buying off the plan process usually requires you to put down an initial deposit first and the rest of the balance is paid during settlement when the construction is finished.

Since settlement for an off the plan property is a while away, you can take your time and find the best home loan. 

Possible capital growth 

In a rising market, buying off the plan can be a good strategy to build capital growth. Since the purchase price has already been agreed upon, market changes won’t affect the final amount you have to pay.  

Even if house prices in the area rise, you’ll be paying the agreed-upon price. You could be paying less as your property is worth more. When this happens, some investors even on-sell their property before settlement and achieve windfall profit. 

Stamp duty savings 

Many state governments provide incentives for off the plan buyers that allow them to defer stamp duty until the construction is completed. Visit your state or territory government’s website to see if you’re entitled to a stamp duty reduction for buying off-the-plan. You can also find out more about stamp duty in our state-by-state stamp duty guide. 

Builder’s guarantee 

New properties generally come with a builder’s guarantee. How the guarantee works and what it covers varies based on the location of the property, so it’s important to check this element of an off the plan property carefully to see if a guarantee is available and how it could protect you. 

Ability to customise the home 

Depending on your developer, you could customise your home even further. Since the home hasn’t been built, you could tweak the plan you chose to accommodate your tastes better. You could choose different fittings and fixtures or change the property’s interior style. 

Cons to buying off the plan 

Here are some drawbacks to buying an off the plan property: 

Potential drop in property value 

Potential property values could fall just as easily as they could increase. If market factors trend downward, you may end up paying more for something that costs less. This could affect your loan-to-value ratio (LVR), which is the amount you need to borrow calculated as a percentage of your lender’s valuation of the property. 

Developer could go bankrupt 

The construction of a property may be left incomplete because the developer goes bankrupt. Buyers could even lose their deposit if the developer goes into administration.  

To avoid this from happening, buyers must do their due diligence. Ask developers for proof of past projects, contact people who have previously used them, check for negative media reports, and, if possible, visit previous projects to assess the quality of the developer’s work before signing the contract.   

Delays may cost you 

It’s not unusual for home construction to have delays because of the weather, shipment issues, or other unforeseen circumstances. If your new home isn’t completed on time, there is likely to be increased costs or inconvenience such as paying more rent depending on your living arrangements.  

Construction exceeds the ‘sunset clause’ 

The sunset clause is a statement in the contract of sale that effectively puts a time limit on the contract’s validity. Should the developer fail to complete the project by the date outlined in the sunset clause, the contract is declared void, and the deposit is returned to the buyer.  

If your property construction is taking longer than expected, ensure your developer updates your contract so that the sunset date falls after construction completion. 

Your financial position may change 

If circumstances change before your final application is approved, whether they be your income or the wider economic environment, you may not be able to borrow the amount you were pre-approved for which could leave a shortfall. 

Finished property may not meet expectations 

When buying off the plan, you are unable to physically see what you’re purchasing which means you might not receive what you had expected or what you were promised by the developer.  

Your new home may even be smaller. If this is the case and the size of your new home is more than 5% smaller than the plans and contract state, you have the right to renegotiate the price. 

Tips for buying off the plan 

As you can see there are many advantages and disadvantages to buying an off the plan property. The best choice for you depends on what your goals are. If you do decide to go with buying off the plan, keep these tips in mind: 

• Get your finance pre-approved so you can be in a strong position to negotiate with the developers and go through the settlement phase more easily. 

• Inspect the finished property carefully to see if there are any defects or issues. Also, understand the process involved in fixing these errors when identified. 

• Ensure you are covered if the developer goes bankrupt before completing the project.   

• Read the terms and conditions of your off the plan property before signing any contracts. It’s a good idea to seek advice from a third party before you sign on the dotted line.  

If you’re buying off-the-plan property and want to know your home loan options, get in touch with loans.com.au! Our friendly lending specialists can discuss our range of competitive, low-rate home loan options to find one that’s perfect for you. 

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