Buying off the plan can have plenty of pluses but is it the right option for you? We weigh up the pros and cons and whether buying off the plan is the right path to take for you.
First off- What exactly does it mean when someone refers to buying an “off the plan” property?
Buying off the plan essentially means committing to sign a contract to buy a property that’s not fully completed. Without a completed property to inspect, buyers based their decision on whether they should buy the property on building plans and information about the project and developer.
There are some benefits to you for buying off the plan, such as being able to obtain stamp duty discounts and only need to put away a smaller amount at the time when the deposit is needed to be paid, allowing more of a financial breathing space.
Factor One- Stamp Duty
Why do I obtain a stamp duty discount by buying off the plan?
Stamp duty is calculated based on the market value of your property. Since an off the plan property is not yet fully constructed, it’s market value at the time you sign the contract (before the property is fully constructed) is likely to be a lot lower than if you were to purchase the finished product.
This could mean handy savings on stamp duty, and who doesn’t like a saving? – especially when it comes to paying less Tax!
Example By State Revenue Office Victoria – Purchasing an off-the-plan apartment
Paige buys an apartment off-the-plan as her future home. The contract price, before any construction has started, is $620,000. The vendor advises Paige that after signing the contract, $465,000 of her contract price will be spent on constructing her apartment.
This means that after applying the off-the-plan concession, the dutiable value of Paige’s apartment is $155,000 ($620,000 – $465,000).
Factor Two- More time to save
How does the valuation of the amount for the deposit works for an off the plan property?
Buying an off the plan property means you only need to pay a small deposit, which is generally about 5-10% of the agreed purchase price at the time the contract of sale is signed. This means you have the extended construction time of the property to save up for the outstanding amount.
However, there are important factors you should take into account when purchasing an off the plan property- as it may also carry some risks.
Factor Three- Property value and Home Loan Rates constantly changing during construction
Property values and home loans can shift from time to time- sometimes for better or worst.
This factor has both advantages and disadvantages attached to it. For example, the purchase price agreed in the contract could end up being a lot less than the value of the property when construction is completed due to the house prices soaring due to factors such as high housing demands at a certain time. This means you end up pocketing a profit by the time the property is completed
However, the exact opposite is also possible, where a buyer could agree to pay a lot more for a property than it is worth. By the time they move in the property value dropped during the time it takes to build the apartment.
And so, if you’re someone who’s looking to buy and sell a property fairly quickly, buying off the plan is probably not a good idea during a market downtown.
The same can be said about Home Loan Rates. Interest rates and bank lending policies can constantly change while construction is underway, depending of the economic conditions during the construction period.
Final words of wisdom-
If you are considering purchasing an off the plan property, a very important step to protect yourself is to have the contract reviewed by a legal professional. Off the plan contracts are often more complex and often drafted in the favour of the developers. They will also provide you with the appropriate advice structured to your personal circumstances.
Happy house hunting!