7 things to know about buying off the plan

Buying off the plan means committing to a property that may be partially completed – or little more than lines on an architect's page. This can make it a lot riskier than buying an established home, and even though you can't see the finished property, it pays to go into an off the plan purchase with your eyes wide open.

Let's take a look at seven key things you need to know about buying off the plan.

Buy with a smaller deposit

Buying off the plan generally calls for a small deposit, in some cases as little as 10% of the purchase price. This can be a big plus for buyers who don't have significant savings, and the building's construction timeframe offers valuable breathing space to save additional funds.

Potential savings on stamp duty

Stamp duty is often a major cost of buying a property, however it is based on the property's value at the time the sale contract is signed.

This being the case, stamp duty can be far lower when buying off the plan because it may be based on the unimproved land value rather than the finished product. The earlier you buy into a development, the bigger the potential stamp duty savings.

Perks for early buyers

Property developers want to see as many buyers sign up to a building as possible, and special discounts or other perks may be available to buyers who sign up at an early stage.

Even where these freebies aren't available, getting a foot in during construction can give buyers greater say in the choice of colour schemes and finishes for their residence.

A chance for rapid capital gains…or losses

When property markets are rising, buying off the plan can be a way to make a quick capital gain – potentially before you have even taken possession.

As a guide, over the year to 31 August 2017, Sydney property prices rose by 13%¹. So a buyer who paid say, $500,000 for an off the plan apartment a year ago, could potentially have made a gain of $65,000 over the past 12 months.

However, the flipside also applies. If the market cools, you could end up paying more for the property than it's worth at the time of completion. In the case of a serious market dip, this could impact your ability to secure finance for the property.

It's a leap of faith

One of the most obvious downsides of buying off the plan is that the building is not yet complete. This makes it hard to visualise your future home, and more importantly, check out things like interior and external noise, how much direct sunlight your home will receive during the day, and the outlook from each room.

Display suites can give you an idea of the dimensions of interior spaces but ultimately there's a lot riding on the finished product, and this highlights the need to select a reputable developer. It can help to inspect other projects completed by the same developer and builder, and be sure to review the contract of sale to understand any inclusions and warranties.

Contracts can be complex

Contracts of sale for off the plan properties can be a lot more complex than for established homes. That makes expert legal advice essential before signing up to buy a place.

Your circumstances could change

It could take months before the building reaches completion, and it's particularly risky to buy off the plan based on assumptions about your future earning potential, the likely direction of home loan interest rates and even property market movements. Importantly, don't overextend yourself.

Talk to your Mortgage Choice broker to understand more about buying off the plan and if it's the right choice for you.

¹CoreLogic August home value index