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.