April 29, 2015
Buying off the plan involves entering into a contract to purchase a property before construction is complete or before building work has begun at all.
Off the plan buying can offer a chance to lock in a price now, whilst you save additional funds during the construction of your new home.
There may be savings on stamp duty also as duty is levied on the value of the property at the time of purchase, and this is often less than the value of the finished construction.
For investors, off the plan purchases can provide additional tax savings as depreciation claims on new buildings are typically more generous than for existing dwellings.
Off the plan purchases can be particularly advantageous in states where First Home Owner grants are given to purchases of newly constructed dwellings. Grants of up to $15,000 are given in some states to first home buyers, as well as potential exemptions from paying stamp duty.
Nonetheless, along with the advantages of buying off the plan, there can be potential downsides. The finished property may be different from your expectations; and property values can rise - or fall - during the construction of your new property.
Here are five key strategies that can streamline the process of buying property off the plan.
Tip 1. Do your research
Before signing a contract of sale it’s important to thoroughly research the proposed property and its developer. Check out completed projects 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. Do you research around similar prices and rental returns on units in this area to make sure that the property has been fairly priced.
Tip 2. Lock in a good solicitor or conveyancer
Off the plan contracts can have a range of clauses that don’t normally appear in contracts for existing dwellings. These clauses may allow the developer to change aspects of the building design or the completion date, or even the final sale price.
It is critical to have your solicitor review the contact so that you are aware of any issues that could affect your property and the timing of any payments. Things to keep a good eye on:
- Sunset clauses: These can work to the benefit of yourself or the developer, but essentially a sunset date, is the data by which, if the home has not been built, you and or the developer can pull out of the contract.
- Changes to original designs - acceptable changes from designs whether they be in area of your rooms, brand or quality of fittings and even the size of your car spot.
- Timings for finance and settlement - once the building is complete, make sure you have enough time to organise your finance with your chosen lender. Your Mortgage Broker can give you estimates on how long this takes for each lender on our panel.
Tip 3. Know your deposit requirements
Buying a property off the plan usually requires a 10% deposit. Some developers will ask for a bank guarantee, others will allow you to use a deposit bond or cash deposit.
Your local Mortgage Choice Loan Expert, David Thomas, can help you organise your deposit and manage the payment process for you. We can also liaise with your solicitor so that you are ready for settlement on the exact date.
Tip 4. Obtain loan pre-approval
Loan pre-approval gives you peace of mind that your loan will be ready to go when settlement rolls around. Your local Mortgage Choice home loan expert can calculate your borrowing power and search through hundreds of home loans to find the one that’s right for you.
Once you have chosen your preferred lender and loan we can do the legwork for you to arrange loan pre-approval.
Tip 5. : Finalise your loan
Six weeks prior to settlement, your Mortgage Choice home loan expert will prepare and lodge a full home loan application, to help you move to unconditional loan approval.
Your lender will need to value the property, and in some instances that valuation may come back short. When that happens, you have three options. You can show your lender that you have sufficient funds to cover the shortfall and allow them to lend you the rest. Or, you can ask us to compare valuations with other banks to see if there is a possibility of a higher valuation with another lender.
A third option is to use equity from another property you own, or ask a family member to act as guarantor on your loan by using the equity they have in their property.
Once you have signed and returned the loan documents to the lender, we will liaise with the lender and your solicitor in relation to settlement. All that remains from here is to celebrate the completion of your new home or investment property!
What has been your experience with off the plan properties? Share your thoughts and let others join the conversation.
For further information, and to put yourself in the best position with valuable information and guidance, contact a trusted consultant from Mortgage Choice on 07 3286 7711.