Buying ‘off-the-plan’ entails entering into a legally binding contract to purchase a property before it reaches the stage of final development and occupancy approval.
Buying off-the-plan can represent significant financial gains for a buyer. In Australia, buyers can enjoy tax depreciation benefits, can access Government grants and incentives and can enjoy owning a ‘new’ property without paying the market premium. First-home buyers around Australia can enjoy exemptions and concessions of stamp duty for properties purchased off-the-plan.
Benefits of buying off the plan:
Secure a high-value asset for a low initial capital outlay – After an initial deposit is made (usually 10%), the entire payment doesn’t need to be paid until the property has been built, giving you time to organize your finances or sell your existing property.
Lock in a price at today’s value – a big advantage of buying off the plan is that you will pay the current market price for a property, even though it will be completed in the future.
Increase in property value – If the market experiences growth, the property you purchase off the plan today may increase in value when you settle up to two years later.
Tax advantages – If purchasing for investment purposes, you may be able to claim depreciation on your tax for items like fixtures and fittings.
Government Grants and incentives – In NSW, off the plan buyers may be eligible for:
New Home Grant Scheme^ – a $5,000 grant (provided that the value of the new home does not exceed $650,000 and the value of vacant land does not exceed $450,000).
First Home Owner Grant Scheme – For eligible transactions made on or after 1 January 2016, the grant amount is $10,000
Stamp duty savings in some states – State governments (in certain states) offer bonuses and reductions in stamp duty for buying off the plan which can save you thousands of dollars.
Seven-year builders guarantee – Newly built properties in Australia come with a seven-year builders guarantee which means structural or interior building faults must be repaired by the builder.
*It is essential to consult your Accountant to find out if you are eligible. Refer to the NSW office of state revenue for further information about grants http://www.osr.nsw. gov.au/grants. ^A new home is a home that has not been previously occupied or sold as a place of residence and includes a house that has been substantially renovated and a home built to replace demolished premises.
The Risks
There are always potential risks when undertaking any major purchase or investment. We recommend that you seek independent legal and financial advice before making any property purchase.
Be well informed; you need to ensure that you do your research and seek further information.
Contract terms – It is essential to have a comprehensive contract that sets out exactly what you are buying – from the features, fixtures, and fittings to the insurance, voting rights (if it’s a strata property), timeframes and dispute-resolution processes.
The rise and fall of the property market – the risk that you may pay too much for a property if the market falls between the exchange of contracts and building completion. Do your research on prospective property locations.
Expectations – generally you will not see the property until construction has completed. Ask plenty of questions, review the quality of fixtures and fittings, make informed decisions.
Interest rates – while currently low, Interest rates could in fact increase before you settle on the property, particularly if you wanted to fix the term of the loan at the current interest rate.
Bankruptcy – Many buyers fear the developer could go into liquidation before the project is completed. Do your research. We recommend that you do your research and ensure that you get independent legal and financial advice on any property purchase or investment. Don’t forget to ask key questions up front and have your Solicitor or Conveyancer to check the terms of the agreement to ensure you are protected, and you achieve peace of mind. NSW Fair Trading advises that buyers can also benefit from asking the right questions. Please see the below link.
Buying an off-the-plan investment property can be an exciting and beneficial venture in your journey to financial freedom.
*Please note that information from this article was sourced from The Property Investors Alliance