Property developments are springing up everywhere, with many commentators claiming that increased property development is the answer to housing affordability. With many of these developments, home buyers buy “off the plan”. That is, they sign a contract to buy the home before it is even built. There are many benefits to this approach, however, if you’re considering this, it’s also important to be aware of the potential risks. We’ll explain both in this article.
What are the risks of buying off the plan?
Not knowing when your home will be finished.Property developers can experience delays which may impact when you can move in.
Market prices might drop before your home is completed. If this happens, you’ll still be liable for the “off the plan” contract price. This can happen if there is a lot of development in an area and there’s an oversupply of stock.
Your circumstances may change.There will generally be at least a 12-18-month lag between when you buy “off the plan” and when you can move into your home. During this time your circumstances may change, potentially making the home unsuitable for your future needs.
You might pay too much.The developer may overvalue the properties in the development. If you pay too much you will struggle to recover your costs on resale.
The development may not go ahead.It’s an unfortunate fact of life that property developers can (and do) go bust before completing developments. Make sure to research the track record of the property developer thoroughly before you buy “off the plan”.
The end product might be different than what you thought.Looking at digitised plans, shiny brochures or even a display home is not the same as walking through and inspecting the features and finishes of a physical home. This may mean your completed home may not match your expectations. Where possible, view the fittings and fixtures that will be used.
Variations can be costly.It’s important to understand any variations a developer is allowed to make before you sign the contract. These variations could encompass everything from the floor plan to fittings and fixtures. Additionally, it’s also important to agree on what you want in the property before you sign, as it can be very costly for you should you decide to make changes down the line.
What are the potential rewards of buying off the plan?
You’ll be buying a brand new home. For most people, this is exciting. You’ll likely be able to choose fixtures and fittings, colour palate and appliances, as well as customise the home to meet your needs.
You might be able to get the best property in the development. The best properties in a development are usually the first to sell. If you register your interest early and act quickly, you might be able to secure the best home for yourself.
It can give you time to get your finances in order. Usually you will only be required to pay a deposit on signing the contract, with the balance payable when the home or unit is built 12-18 months later. However, you should always speak to your lender, understand your borrowing capacity and whether you can obtain pre-approval before buying “off the plan”.
Your property value might increase before your home is completed. Property tends to increase in value over time, so depending on market conditions and how early you purchase an “off the plan” home in a development, you may be able to capitalise on this.You might be eligible for a government grant. Depending on the state you live in, you may be eligible for a government grant if one applies for the construction of new homes.
You’ll be eligible to claim tax deductions on investment properties. If you rent out your home when it is completed, you’ll be able to claim expenses like interest and depreciation as tax deductions.
As you can see, there are potential risks and rewards to buying off the plan. If you are considering this as an option make sure to do your research and sort out your financing needs before you sign on the dotted line.
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