Pros and Cons of Buying Off the Plan Property
Many young people buying their first home consider purchasing off the plan property. But what does this mean?
Buying off the plan involves purchasing a property before construction begins. Developers often need construction funding from banks. To secure this, they must sell a certain percentage of units in advance. As a result, they engage in off-the-plan sales, usually with the help of real estate agents.
How the Process Works
A buyer signs a sales contract for an off-the-plan property. After the cooling-off period, they pay a 10% deposit along with stamp duty. This amount is held in a trust account by a conveyancer or lawyer. The buyer then waits 1 to 3 years (sometimes longer) for construction to finish. The developer will notify them of the exact settlement date, which can be uncertain.
Benefits of Buying Off the Plan Property
Leverage
Buyers commit only a small upfront amount—usually 10% of the property value. This allows them to save more towards settlement.
Lower Property Price
Buying early in a project may result in discounts before construction begins, securing a lower price.
Capital Growth
Property prices may rise before completion, increasing the property’s value. However, this usually happens in a booming market and is not guaranteed.
Interest Income
Some developers accept a bank guarantee instead of a cash deposit. This allows buyers to keep their funds and earn interest.
Design Flexibility
Off-the-plan properties often allow buyers to customize aspects of the design to suit their preferences.
Risks of Buying Off the Plan Property
Developer Bankruptcy
If the developer goes bankrupt, contract terms will determine whether the buyer gets their deposit back. If property prices rise, buyers may also lose the chance to secure the property at the initial price.
Falling Property Value
Buyers often expect property values to rise, but this is not always the case. If the final valuation is lower than expected, borrowing requirements may increase, requiring additional funds for settlement.
Quality Differences Upon Completion
Unlike established properties, off-the-plan buyers cannot inspect the final product before purchase. If the finished property does not meet expectations, options may be limited to settling or facing penalties for contract cancellation.
Changes in Borrowing Power
Loan approval is based on current financial conditions. Since off-the-plan properties take years to complete, lending policies may change. A buyer’s financial situation may also shift, affecting loan eligibility.
Government Incentives and Mortgage Assistance
Buyers should consider first home buyer grants and stamp duty concessions, which vary by state. A mortgage broker can help navigate these financial aspects.
Choosing the Right Mortgage Broker
A reliable mortgage broker can assist with tight settlement deadlines. EG Home Loan prides itself on being professional, honest, and responsive. We work to secure lower interest rates and ensure a smooth home loan process.
If you are a first-home buyer and want to check your borrowing eligibility, contact Cindy at 0403-418-758 or email hello@endurego.com.
