Do your homework and get specialist advice before you sign.
Buying off the plan can seem very appealing, but is it?
You are buying a new property and can tailor the interior decoration to your taste. You usually pay a 10 per cent deposit and the final payment is not due until the property is completed, giving you plenty of time to organise your finances, which may include selling an existing property. Also, in Victoria and South Australia there are stamp duty savings which can add up to tens of thousands of dollars.
Smoke and mirrors
The display suite may not be a true representation of what you are getting in terms of quality of fixtures and fittings. There is no way to tell from a display suite how thick the walls will be, what the soundproofing will be like, the quality of the windows and so on. You may find that the high-end appliances in the display suite are not included in the basic contract without paying for an upgrade.
It can also be very difficult when looking at a display suite or plan drawing to get a true sense of the dimensions of each room. Make sure you get a scale drawing of the design and step out the dimensions at home – just how much smaller is the lounge room, will your furniture fit?
Buying off the plan means you may have no idea who your neighbours will be. There have been many reports of downsizing couples buying an apartment only to discover, when they move in, that the other apartments are investor-owned holiday rentals.
How long is a piece of string?
Make sure the contract states that you will be compensated financially if the work is not completed on time. Otherwise, you could find yourself in a costly short-term rental and your furniture in storage.
‘Sunset’ clauses in many contracts mean that if the delivery date is more than a year after the original completion date, the contract can be rescinded. But where does that leave you? In the time you have been waiting, property prices will most likely have increased, so you will have to buy into a more expensive market. This ‘sunset’ clause cuts both ways – the developer can also rescind the contract.
There have been reports of developers deliberately delaying completion in order to give the original deposit back and put the completed apartment on the market at a much higher price.
If the property market declines during the construction period, you may find it difficult to finance your purchase. The bank will approve a mortgage based on the current market value at the time of completion. You are locked in to paying the developer the full purchase price, but if the market has declined the bank valuation may be lower than this figure and you will have to fund the difference.
The resale value of apartments bought off the plan is much lower than that of conventional dwellings. A recent report in the Australian Financial Review stated that some apartments, sold in the first 18 months after completion, resulted in losses of up 30 per cent on the investment.
Still considering taking the plunge?
Get the details of other developments constructed by the same company and check them out. If you’re lucky there will be one for sale and you can get a good look inside. Even checking out the exterior of the building and lobby areas will give you an idea of whether your developer is likely to deliver on his promise.
Make sure you invest your money wisely in the interim and be aware that you may need to have a temporary accommodation solution as a back-up if the development is delayed or, worse, never be completed.
Research all the parties involved in the development: the developer, the builder and the selling agent. If you decide to go ahead, ensure the contract is checked by a specialist property lawyer.
Have you bought off the plan? Was it a good or bad experience?