Buying Off the Plan: 8 Key Considerations for Purchasers
Have you ever heard of the term “buying off the plan”? It may sound a bit unconventional, but it can be a more affordable way to get the home of your dreams. On top of that, this option actually has some great advantages to it which makes it seem attractive to many property buyers.
However, if you’re not familiar with the concept and the processes that go along with it, it’s best to do your own research before jumping on the wagon. You must understand what you’re getting into to ensure it’s a smart decision. In this article, we’ll walk you through the basics of buying off the plan and tackle considerations that you must think about before making your choice.
The first thing you must understand is what the term “buying off the plan” means. When you buy off the plan, you’re purchasing a property that hasn’t been built yet. Instead of seeing the finished product, you rely on floor plans, architectural drawings, and display suites to visualise your future home. It’s like ordering a delicious dish at a restaurant based on the menu description, without actually seeing it first.
Your next question is probably about why people choose to buy off the plan instead of purchasing a house that’s already finished. As mentioned, there are a couple of advantages to this option:
If you’re an early bird and get in before construction starts, developers may offer a discount on the purchase price. Who doesn’t love a good bargain?
With an off-the-plan purchase, you might have the opportunity to negotiate changes to the interior style of the property. It’s like customising your dream home to suit your taste and preferences.
Depending on the state or territory you’re buying in, you may be eligible for exemptions or concessions on stamp duty, and property investors can also benefit from potential tax deductions. This means you can save on upfront costs and potentially reduce your tax obligations.
If you’re a first home buyer, you could be eligible for the First Home Owner Grant (FHOG). It’s a helping hand from the government to make your dream of owning a home come true.
When buying off the plan, you only need to pay a deposit when signing the contract. The balance of the purchase price is paid at settlement after the construction is finished. This gives you time to save up, reduce your borrowing amount, or cover other upfront costs. You might even have some spare cash to splurge on new furniture.
While buying off the plan comes with its fair share of advantages, it’s important to be aware of the potential drawbacks as well:
Since you can’t physically walk through the property before buying it, there’s a chance it might not meet your expectations when it’s done (even if you’ve already expressed your preferences to the builders).
Sometimes, the building might not be completed on time. This can lead to increased costs and inconveniences, especially if you’re renting while waiting for your new home.
In the unfortunate event that the developer goes bankrupt before completing the project, you might not get your deposit back. It’s essential to review the contract and understand the terms and conditions thoroughly.
Property values, interest rates, and even your income can fluctuate over time. There’s a chance that the property’s value could decrease by the time it’s completed, leaving you paying more than it’s worth.
Always weigh the Pros and Cons against each other. Buying off the plan offers some enticing benefits, but you have to carefully consider the risks, evaluate different factors, and assess your personal circumstances and financial goals.
If you’ve already made up your mind after reviewing the Pros and Cons, there are more considerations that you have to remember before buying off the plan:
Make sure that you fully understand what buying off the plan means and what it entails. Basically, you must know what you’re getting yourself into.
Before signing any contracts, it’s wise to thoroughly research the developer and investigate their reputation and track record. This is a very crucial step. How long have they been in the industry? How many properties have they successfully built? Gathering this information will help you gauge their credibility and reliability.
Contracts can be a headache to go through. You can always engage with a solicitor or conveyancer before signing any off-the-plan contracts. These legal professionals can carefully review the contract, offer valuable legal advice, and ensure your interests are protected throughout the process.
Buying off the plan often involves a significant time gap between signing the contract and the property’s completion. It’s essential to inquire about the estimated completion date and consider potential construction delays that may arise.
It’s important to have a clear understanding of the various financing options available when buying off the plan. For instance, different deposit requirements, progress payments, and lending criteria must be met during the construction process.
When you initially sign the contract of sale, you’ll typically pay a deposit ranging from 5% to 20%. However, keep in mind that if the value of your property changes during construction, it may affect your loan-to-value ratio and potentially require additional costs like Lenders Mortgage Insurance (LMI).
Other financial considerations to remember are:
- Buying off the plan gives you the option to defer your stamp duty payment for up to 12 months, providing extra time to save up for these expenses.
- Securing a home loan for an off-the-plan property differs from buying an established property. While some banks or lenders may offer conditional approval before construction commences, the funds won’t be disbursed until the property is built, and a valuation of the finished product, as well as an assessment of your financial situation, is conducted.
- Most importantly, keep in mind that your financial circumstances can change after purchasing an off-the-plan property. Factors such as employment changes, additional debts, or new additions to your family may impact your ability to service the loan for the property.
As mentioned in the section that talks about the Cons of buying off the plan, it’s also essential to be aware of the potential risks. These risks may include variations in the final product compared to your initial expectations, changes in market conditions, potential construction delays, and the financial stability of the developer.
Advice from legal professionals is essential, and this can’t be stressed enough. They will closely examine the contract with you, identify any unexpected costs or conditions that may impact you in the future, and discuss contingency plans if things don’t go as planned. They can also answer any important questions you may have and provide information on available grants or schemes.
Maintain regular communication with the developer to stay informed about the project’s progress. It is crucial to obtain frequent updates and remain aware of any potential changes or issues that may arise during the construction phase.
You’re now armed with the essential knowledge to consider buying off the plan. But if you want a confident guide and a reliable adviser throughout the process, consider reaching out to a mortgage broker from Vision. We can help you find a loan that suits your needs and property goals. Contact us today and let’s make your dream home a reality.
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