Buying off the plan can be a savvy move for many Australian home buyers and investors, providing an affordable and flexible solution to buying property in Australia. As with any property investment however, there are pros and cons and it’s essential that home buyers understand what buying off the plan entails and what to expect. In this guide, we’ll help you navigate the process, understand the benefits and pitfalls, and prepare you to make an informed decision about buying off the plan.
What buying off the plan means
Buying off the plan means buying a property that has not yet been built or is still under construction. Instead of viewing a finished home, buyers base their decisions on architectural plans, artist impressions, and building specifications. This type of property purchase is common in new apartment developments and townhouse complexes and is fast becoming a popular choice for first home buyers in Australia.
Key differences
There are some important differences when buying off the plan compared to buying an existing property, and each comes with benefits and risks.
Difference 1: The property hasn't been built yet
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Buying before construction starts could allow you to negotiate on price with the developer. |
The finished property might not match your expectations or could turn out differently to what you expected. |
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You may get to decide on the interior design and choose fittings and fixtures that match your style. |
Construction delays are common and can lead to higher costs and inconvenience, especially if you have to keep renting until the property is ready. |
Difference 2: Deposit
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Typically a 10 – 20% deposit is required at the time the contract is signed, with the balance paid on settlement once the property is built. So you have more time to reduce the amount you’re borrowing or save for other up front expenses. |
If the developer goes bankrupt before completing the project, you may not get your deposit back.
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If your deposit is held in a trust account, you may be able to earn interest on your savings while your home is being built. |
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Difference 3: Government Concessions
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In some states and territories, you may be able to save on stamp duty because you’re buying a new property. However, you may be required to pay stamp duty on the land component of your new property. |
If you're buying the property as an investment, tax benefits may be available, but they are often complex. Consult with an accountant or registered tax agent to understand any tax implications and benefits. |
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If you’re buying your first home, you could be eligible for the First Home Owner Grant (FHOG). Check your state to see if you qualify. |
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Difference 4: Changing market conditions
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If market conditions improve, the property could increase in value during construction, increasing your return on investment. |
Higher interest rates or changes to your income could affect how much you may be able to borrow or the repayments you can afford to make. |
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Because the lender only values the property on completion, there’s a chance the final valuation may be lower than expected, impacting your loan to value ratio (LVR) and the amount you may be able to borrow. |
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If your financial situation or personal circumstances change, you may not be able to borrow the amount you were pre-approved for which could leave a shortfall. |
What to do if something goes wrong
Despite every good intention and the very best planning, things can go wrong when buying property. Common issues when buying off the plan include construction delays, changes to your financial situation, or issues with the developer. To protect yourself, it’s important you:
- Do your research. Choose a reputable developer with a proven track record.
- Read the contract carefully. Check there are clauses to protect you against significant delays.
- Get legal advice. Have your solicitor review the contract before you sign.
- Stay informed. Keep in regular contact with the developer and stay updated on construction progress.
Get help navigating the process
Many home buyers are hesitant to buy off the plan simply because they don't understand how it works, or they fear it could leave them financially worse off. But with the right guidance and careful preparation, buying off the plan can be an affordable and flexible alternative to buying an existing property.
To get expert advice and guidance when buying off the plan in Australia, and help making informed decisions that fit your financial goals, work with a mortgage broker from Mortgage Express who has experience arranging finance for this type of property purchase and can guide you through the process. Contact Mortgage Express today.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
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