Buying off the plan can be daunting because you’re buying something that doesn’t really exist yet. Someone is selling something that they promise will exist at some point in the future. Not only that, but they’re promising they will deliver exactly what is on the plan.
Off the plan property can involve anything from units, townhouses, detached dwellings and prestige apartments. The process varies to the sale of existing property, and can involve more risk. Particularly in the current market, where the public is full of fear about oversupply, you need to get a grip on the process of buying off the plan before you dive in.
Fortunately, we’ve put together a few tips that will help you navigate the process and ensure your experience is a positive one.
Think about timing
When you buy property off the plan, you’re committing to buy something at today’s price and its real value will be determined in the future when the property has been built. Therefore, it’s important to think about where you are in the property cycle.
You want to be reasonably confident that values are going to rise, or at least stay flat between when you sign the contract and when the property settles.
In a rising market where property values are going up, you will be paying the price you previously committed to for a property that has risen in value and you’ll have a capital gain.
On the other hand, a significant risk lies in off the plan property if the market is in a downturn. You could be locked into a contract and be paying more money that the property is actually worth.
We advise anyone buying off the plan to research thoroughly and consider how the market is likely to perform in the period between signing a contract and settlement. If this sounds too daunting, speak to a buyer’s agent who can do this legwork for you.
One last but important factor to consider here is the time to completion. The longer you wait until completion or settlement, the more risk involved.
Use your time wisely
In off the plan property, settlement periods can vary, but they are usually quite long. During this time, it’s wise to do some planning and build up your personal savings.
In most cases, you’ll need a 10% deposit to secure the property. If settlement isn’t occurring for 6 months, we advise you save some money so you can take out a smaller loan. This means you’ll have smaller repayments and can start saving more money for your next investment.
Check the specs
Usually, when you buy property, you can walk through the house or apartment and inspect the layout, sizes and finishes in person. With off the plan property, you are often looking at these specifications on a piece of paper.
Even if there’s a display suite, other apartments in the project will be different in terms of size, layout, fittings and finishes.
Make sure you look at every detail. It’s also very important to cross check what’s in the marketing material with what’s in the contract. It’s rare, but you’ll be in for a rude shock if the developer lies or exaggerates in the marketing material.
Also, don’t be afraid to ask lots of questions. Buying a property off the plan is a big commitment and you don’t want to be making any mistakes.
Get a solicitor to review the contract
The contract of sale is obviously a vital part of any property sale. It is, of course, legally binding and is what parties will refer to during the sales process, especially if there is a dispute.
It’s extremely important to have your contract reviewed by an independent solicitor. Off the plan contracts tend to be more complex than contracts for existing properties and each clause needs to be checked carefully.
So make sure you don’t sign that dotted line until your solicitor has given it the green light.
If you are signing a contract and settlement isn’t for 12 months, you need to think about your personal position and how it might change in that time.
Are you secure in your job? Are you planning on starting a family? Are there any other significant events in the coming months?
Your circumstances can change dramatically in that time, so make sure you factor in anything that might affect you and your decision to purchase in the short to medium term.
Once you sign that contract, it’s quite hard to get out of it.
Go with a reputable developer
You guessed it – more research!
Check out the developer’s track record. You want to be dealing with someone who always delivers on their promises.
You should be checking the consistency with which they deliver projects, which will mean it’s less likely they will become insolvent. If the developer goes under, it’s an absolute nightmare trying to get your money back.
The quality of their completed projects is also something to look at to determine whether the finish quality is up to standard and there won’t be maintenance issues as soon as you or your tenant moves in.
In today’s lending climate, you need to be mindful of what the banks will and won’t lend against.
With apartments under 50 square metres in size, lenders will either require a larger deposit for the purchase or they won’t fund it at all.
It’s a great idea to chat with your lender or, better yet, a broker to determine whether you’ll get finance for the type of property you’re looking to buy.
If you’re thinking about buying off the plan, make sure you keep all 7 things above in mind during your decision-making process.
The Red & Co team can help answer any questions or concerns you might have, just get in touch with us on 1300 88 73 28 or email [email protected].