BUYING OFF-THE-PLAN: ALL YOU NEED TO KNOW

‘Off-the-plan' simply means buying a property (house, townhouse or an apartment) which is not yet built but rather is purchased by looking at the plans and/or marketing material.

We often get asked questions like “What if the construction gets delayed?”, “What if developer/builder goes bankrupt?”, “Why not old/established property?”.

There are a lot of uncertainty and myths around off-the-plan investments but as with most things in real estate, buying off-the-plan has its pros and cons.

In today’s blog, we will discover the key benefits and associated risks for purchasing off-the-plan properties.


Benefits of purchasing off-the-plan properties:


1.      Buying time to save money

Purchasing a property generally requires 10% deposit upfront while signing the contract and the remaining balance is payable upon settlement, i.e. generally within 30-90 days for established properties.

However, with off-the-plan properties, you need 10% deposit or less at the time of signing the contract, but the settlement time may range from 6 months to 4+ years depending on the type of property. This additional time prior to settlement not only helps to enter the market with a smaller deposit but also gives you time to save the remainder of the deposit.


2.      More Options Available to Select From

While buying an off-the-plan property, generally there will be multiple options to choose from. Whether you are looking at a particular orientation, floor plan, finishes, views etc., you will have a lot more choices available.

On the other hand, with the established properties, you can only select from what is available on the market.

When you have better choices, you have a better chance of having a higher return on your investment in the long term.


3.      Easier to Hold onto

In comparison to established properties, off the plan properties are much easier to hold onto for a longer term due to various factors:

  • Better Rental Yield – Brand new properties are generally more attractive to tenants for its better appeal, modern design, new appliances, better energy rating etc. The rental returns are generally higher when compared with old established properties or refurbished properties.

  • Lower Maintenance – Brand new properties have much lower ongoing maintenance costs. Generally, new properties come with builder’s warranties which can cover structural and certain interior building faults.

  • Higher Tax Benefits for Investors – There is a significant difference between older properties and brand-new properties in relation to claiming tax depreciation. Off-the-plan and brand-new properties allow for much higher tax depreciation, in contrast to existing properties that already have accumulated wear and tear. This can boost tax benefits for investors.

All these factors affect the cashflow for your property. The better the cashflow, the easier it is to hold on to your investment for a long term and enjoy the capital gains earned over time.

 

4.      Access to Government Grants & Incentives

Off-the-plan properties often have more government grants and incentives for the purchasers, be it first homeowners or investors.  The main reason behind this is the number of jobs created in developing new properties as it also helps create additional supply to cater to the increasing demands.

First Homeowners Grant, Home Builder Grant, Stamp Duty Discount and First Home Loan Deposit Scheme are some of the schemes and incentives currently available. They all have their own qualification criteria and price caps in place. We highly recommend verifying the eligibility prior to entering into the contract to purchase.

 

Things to consider before buying off-the-plan

 

1.      Change in Situation

 Changes in personal circumstances, market downturn or banking policies could affect your purchase

  • Personal Circumstances – Personal financial situation can change between signing the contract and completion of the project, which may impact the amount of money you may be able to borrow.

  • Market Changes – The downturn in the property market can have a potential impact on your purchase and its value. If this occurs, one may find it difficult to secure the finance as anticipated.

  • Banking Policies – Banking policies often change based on the market conditions and interest rates. So, a favourable condition while purchasing the property may not be the same when you need to secure the finance upon approaching the completion of the property.


2.      Not as expected

 Off-the-plan properties are purchased looking at a plan, render images, marketing material and/or display suites. And often it is hard to visualize what it may look like upon completion. When the property is finished it may not be as expected or envisioned it to be.


3.      Delays & Quality Concerns

There are often risks around the completion of off-the-plan purchases. There can be delays due to numerous factors, such as: not enough pre-sales by developer to start construction on time, delays for the developers to secure funding, delays at council, delays with infrastructure etc. 

The other risks associated is quality of the end product. It can be very different to what was shown by the developer/builder on renders and at display suites.


4.      Sunset Clause

The delay doesn’t necessarily mean you can just get out of the contract and get your deposit money back. You need to wait until the sunset clause finishes.

A sunset clause is a condition in an ‘off-the-plan' contract of sale which allows the vendor and the purchaser to terminate the contract if - the plan of subdivision has not been registered by the specified ‘sunset date’; or an occupancy permit has not been issued by the sunset date.


TEAM SONI CAN HELP

At SONI, we specialise in assisting our clients to take full advantage of off-the-plan properties while protecting them against the risks associated using our expertise and thorough due-diligence.

We have a system in place to identify your situation, needs and aspirations, your concerns and your risk appetite. 

We take time to educate you on property investments and implement a tailor-made investment strategy to build wealth through property. 

Whether you are looking to buy your first home, your first investment property or to build on to your existing portfolio, be rest assured our team of experts have extensive experience and are committed to making things happen for you.

 

Book your 60-minute no-obligation Wealth Consultation NOW via this link https://lnkd.in/ezYrnFi