Understanding the Risks of Buying Off the Plan

Real estate agents across Australia are reporting an increase in buyers looking to purchase a property off the plan. But what does “buying off the plan” actually mean? What are the risks of buying off the plan? And how can you successfully avoid the pitfalls of pre-construction property buying? In this article, we’ll explain the things you need to know before buying property off the plan.

Understanding the Benefits and Risks of Buying off the Plan

In Australian real estate, “buying off the plan” means that you’re purchasing a property that hasn’t been built yet. While this might seem like a risky commitment, buying off the plan is a common policy with major housing developers. The interested buyer will sign a contract with the builder based on detailed architectural plans and specifications for the proposed house. After paying an initial deposit, the developer will commence work on the project and the buyer will continue to make payments in instalments as specific construction milestones are achieved.

What are the Benefits of Buying off the Plan?

Many first-home buyers and investors are drawn to off the plan property purchases because of the potential savings and associated financial advantages. These include:

• Lower initial costs when buying off the plan: Buying a property off the plan may result in significant savings when compared to buying an established home in the same area. Additionally, construction developers will often advertise off the plan properties with a range of discounts such as upgraded finishes or added features at no extra cost.
• Potential capital growth investment opportunities: In a rising property market, an off the plan purchase may allow for capital growth on the property before you even reach the settlement date. Your asset could be appreciating in value while it’s still being built.
• Pre-construction buying gets you a brand new home: Buying off the plan allows for you to customise the property to suit your lifestyle (without the hassle of renovating). You can incorporate the latest features for improved energy efficiency and low-maintenance living and adjust the size or layout of the home depending on your needs.
• Potential tax benefits for off plan property purchases: Investors who choose to buy off the plan may be eligible for certain tax benefits, such as depreciation deductions or stamp duty concessions.

What are the Challenges of Off Plan Property Purchase?

There are certain challenges of off plan property purchase that buyers will need to be aware of and consider carefully before signing a contract with a builder or developer. These include:

• Developer credibility is a risk when buying off the plan: It’s essential to research the credibility and recent track record of the developer before committing to an off the plan purchase. If the developer is in an uncertain financial position or has a history of delivering sub-par projects then it’s a good idea to look elsewhere.
• Market fluctuations are a danger when investing in off the plan homes: The property market can fluctuate, and the value of an off the plan property may change between the time of purchase and settlement. While buyers hope for capital growth, there is also the risk of a decline in property values, potentially leading to financial losses.
• Construction delays are a challenge of off plan property purchases: One of the most common risks is construction delays. The completion date provided in the contract may not be met due to factors beyond the control of the builder, such as bad weather, labour shortages or difficulty sourcing materials.
• Contractual complexities can make buying off the plan confusing: Because the contracts for an off the plan purchase can be quite complex, it’s a good idea to seek trustworthy legal advice to ensure your rights are protected. Expert assistance will also ensure you understand your contractual obligations before signing.

What to Know Before Buying Property off the Plan: Our Top 3 Tips

While there are certain dangers in investing in off the plan homes, there are also steps you can take to minimise the risk. With thorough research, due diligence and the assistance of industry experts, you can successfully avoid the pitfalls of pre-construction property buying.

1.   Research the area: Stay informed about local property market trends in the area where you plan to buy. This will help you make an informed decision about the property’s potential value. If possible, visit the site so that you can check out the area (including local infrastructure and available amenities).

2.   Ensure due diligence: Don’t just take the advice of a developer or salesperson at face value. Gather all relevant information and then carefully evaluate the benefits and risks involved. You may even consider getting an independent valuation.

3.   Talk to industry experts: Seek expert advice from trustworthy industry professionals. They can help you understand the implications of contract clauses. It’s also important to seek tailored financial advice so that you understand the financial implications and risks associated with the purchase.

Successfully Overcome the Challenges of Off Plan Property Purchases with ZEP Finance

Buying a property off the plan can come with considerable benefits, as well as some unique challenges. If you’re considering an off the plan purchase then make sure you get the right advice from someone you can trust. Contact the experienced team at ZEP Finance today for some friendly and professional assistance.