Buying property off-the-plan is becoming a popular choice for first home buyers as it’s a reasonably affordable way to enter the property market. In simple terms, off-the-plan means purchasing property that hasn’t yet been built. This can have big benefits for new buyers and investors, but as with any big financial decision, it’s good to do your homework first to better understand what you’re getting into.
Whether you’re buying your first home or an investment, it’s always a good idea to monitor the market and do your research on the suburbs you’re interested in. You should consider things such as whether there’s any proposed future developments in the area that could impact your purchase or if you have plans to rent it out, you should look at the current vacancy rates and average rental yields.
It’s worthwhile doing a background check on your building developer to not only ensure they are reputable, but that they also have a good track record of completing projects on time. Reading up on their past performance and visiting finished projects they’ve worked on will help you make a more informed decision. It’s also wise to make sure they have Development Approval (DA), as not having one will increase the risk of the development not proceeding.
Whenever you buy property, you should always think about how it will sell in the future and how it will appeal to buyers. Is it a house on a bigger block? Is the location in an upcoming area? Are there proposed infrastructure plans close by that will increase the property price? It may be hard trying to sell a one-bedroom apartment in a family-orientated suburb. Similarly, you could have difficulty selling a family home on a busy street known for nightlife.
Developers have pre-sales targets they need to meet before they get the finance to start construction. When they first put their project out on the market, you’ll not only get your pick of the lot but you’ll also be more likely to negotiate a lower price. After pre-sale targets are met and the developer has approved finance, they are much less likely to give you a better deal as they aren’t concerned now about financial backing.
Unlike an established property where you can physically see and walk around the space you’re buying, your off-the-plan purchase is made based on specifications. This can be good and bad for a few reasons. The plus side is you get to start from scratch and pick out your favourite trimmings from curtains to carpets. The downside is that you are committing to a property you haven’t been able to inspect and you may not end up with the apartment you thought you signed up for. You’ll want to carefully check over all the specs outlined in your contract and ask plenty of questions so you’re not surprised after completion.
On top of finding out how punctual your developer is, before you purchase, it’s best to find out when construction is set to begin and whether they have reached their sales targets, as this could cause delays. It’s also wise to understand the sunset clause in your sales contract. This is the maximum amount of time your developer has before they must complete construction. It gives you a date when you can legally forego the contract and get a refund on your deposit if your home hasn’t been built.
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When you purchase property, it’s usually a good idea to get the help of a conveyancer or solicitor to look after all the paperwork you’ll need to sign before you settle. Because buying off-the-plan is different to buying an already established property, it is highly recommended you seek out legal advice to independently review your contract and make sure you understand all the fine print and clauses that may not always be in your favour. There are costs involved, but they are much smaller than having to deal with legal battles later if you haven’t done your due diligence.
Getting pre-approval for a loan is a smart move before signing any contracts. Although banks and other lenders can offer conditional approval for off-the-plan purchases, they won’t loan you any money until the property has been built and they have performed a valuation. You can try to get a ‘subject to finance’ clause in your contract which will protect you with an agreement that your purchase is subject to you obtaining finance, however this isn’t often possible when purchasing off-the-plan, as the vendor needs to sell a certain percentage of the development in order to obtain finance themselves.
Many first home buyers think their hard work is done once they’ve saved up their deposit. Unfortunately, there are quite a number of unexpected costs that come with buying your own place. For example, one ongoing cost that affects those living in shared spaces is strata fees. This is a fee that the owner of an apartment needs to pay quarterly to the Owners Corporation for the upkeep and management of the building. These costs can vary significantly depending on the number of apartments in the building and whether facilities such as pools or a gym are part of the development.
If you’re a first home buyer that meets the criteria required, you could be eligible to receive the First Home Owner’s Grant (FHOG). Buying off-the-plan in Melbourne won’t only give you the $10K FHOG, but you’ll also be eligible for stamp duty concessions that could save you thousands. If your new place is under $600K too, you’re in an even better position as you won’t have to pay stamp duty at all. You can find all the details and what you’re eligible for on the Victorian State Revenue Office First Home Owner website.