- What is ‘off the plan’?
- How do off the plan purchases work?
- Is it worth buying off the plan?
- What are the risks of buying off the plan?
When you’re buying a house, you have a few options: buy a previously-owned home, build, or buy off the plan. Like the other options, buying off the plan has both advantages and disadvantages. But what does an off the plan purchase actually involve and how does it work? We’ve outlined everything you need to know below. Keep reading to learn more or speak to our experienced conveyancers if you have any questions.
What is ‘off the plan’?
Buying off the plan is when you sign a contract of sale to buy a property that has yet to be built or is in the process of being built. Without a physical property to inspect, buyers must base their decision based on building plans and designs.
How do off the plan purchases work?
As mentioned, you’ll sign a contract for a house that hasn’t been built yet or is under construction. A 10 per cent deposit is usually required at the time of signing and the full balance is then payable at settlement (which occurs when the property is complete).
The time it takes for an off the plan property to be completed can also take several years.
Related information: property settlement process NSW
Can you negotiate price when buying off the plan?
Most off the plan properties have a fixed price, but the vendor may be open to negotiation – especially during the early stages of selling the properties.
Is it worth buying off the plan?
There are definitely advantages to buying off the plan, which include:
- Time to save: When you sign the contract of sale, you’ll only need to pay a deposit (often 10%) and the rest of the balance is paid at settlement. This can then give you additional time to save money for your new home.
- Developer discounts: If you’re one of the early purchasers, especially before construction begins, you may be able to get a developer discount off the purchase price.
- Government grants: If you’re a first home buyer, you may be eligible for both stamp duty concessions and government grants — in particular, the First Home Owners Grant (FHOG).
- Stamp duty savings: there is a stamp duty concession that applies to “off the plan” purchases so that stamp duty can usually be paid 15 months after the date of contract or the completion date, whichever comes first. However, this only applies if the property will be your principal place of residence.
- Tax benefits for investors: If you’re buying off the plan as an investor, you may be eligible for tax benefits – but this needs to be discussed with your conveyancer, as tax rules can be complicated.
- Capital growth: The value of the property may increase during the course of construction.
Learn more: Pros and cons of buying off the plan
What are the risks of buying off the plan?
Despite the benefits of buying off the plan, there are still a number of risks involved. This is especially because you’re buying something that does not exist yet. We’ve outlined some of the risks involved in buying off the plan:
- Market fluctuations: There is a chance the market conditions will change between signing the contract and the completion of the project. This means your final property value could be lower, which would impact your loan-to-value (LVR) ratio, your interest rate and your mortgage repayments.
- Builder bankruptcy: There is a risk the builder will go bankrupt before completing the project. This means you may not get your deposit back.
- Construction delays: There may be construction delays that mean the building isn’t completed on time. This can potentially increase costs, especially if you need to continue renting while you wait for it to be completed.
- Quality of the property: As mentioned, you don’t get to see the property before it’s built. So there is a risk it won’t meet your expectations.
- Financial situation changes: If your circumstances change during the course of construction, you may not be able to borrow the amount for which you were pre-approved.
Learn more:
- Is a house deposit refundable?
- Buying off the plan sunset clawbacks
- How am I protected against the risks of buying off the plan?
Speak to Owen Hodge
Owen Hodge Lawyers have many years of experience in dealing with conveyancing for off the plan property transactions in NSW. We can assist you with the process, and achieve the outcome you desire, so contact the property lawyer and conveyancing team on 1800 770 780.