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How to plan for buying off the plan

Buying off the plan means entering into a contract to purchase a property before construction is complete or even started at all.

There are plenty of opportunities to buy off the plan but with large numbers of apartment blocks being built, it's important to look at the pros and cons.

Buying off the plan means entering into a contract to purchase a property before construction is complete or even started at all.

On the plus side, off the plan buying can provide savings on stamp duty, which is levied on the value of the property at the time of purchase – not completion. So you could only pay duty on your share of the vacant land, not the value of the finished construction.

If you're an investor, buying off the plan can provide valuable tax savings. That's because depreciation claims on new buildings are often more generous than for established properties.

As an owner occupier, buying off the plan means you could have months – potentially longer, to save more of a deposit.

What to consider

However, buying off the plan is a leap of faith – in more ways than one. Firstly, you don't really know how the finished property will look

Minimise this risk by taking a look at other projects undertaken by the same builder, and know how your property will differ from the display suite. Understand exactly what the sale contract includes by way of fixtures and fittings, and enquire about ongoing costs like strata levies to ensure they are affordable.

Consider your own situation too. If your current job (and therefore income) is at all uncertain, be very wary of committing to something you may not be required to seriously start paying off for quite some time.

The danger areas

Some cities have seen significant growth in apartment developments in recent years. This is fueling concerns about an oversupply in certain areas, and some lenders are imposing requirements for a higher deposit. This especially applies where there is a large number of apartment developments – particularly high rise buildings that can have significant numbers of similar properties.

This all makes it critical to know how much of a deposit you need to get your loan application over the line when you sign up for a particular property. Don't assume the lenders standard LVR (loan to valuation ratio) will apply.

The bottom line is that it is worth speaking with your local Mortgage Choice home loan expert if you are looking at an off the plan property. We know the restrictions being imposed by different lenders, and this can be critical information to support your loan application. We can also provide hints and tips on how to grow your deposit.

Posted in: Home loans

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