Buying Off The Plan Tips Advice plus First Home Buyers
Buying Off The Plan Tips
This buying off the plan tips article and related articles will help you to establish the benefits and disadvantages of buying off the plan apartments.
One of the important considerations you will need to make when buying a property is, should I buy an established home or off the plan?.
Whilst the excitement of being the first person to live in the home and the flexibility to choose your floor plan and colour schemes may be appealing, there are also some common pitfalls that you need to be aware of if you intend to buy off the plan.
Property investors love numbers. It doesn’t get much more satisfying than snapping up a house or unit for less than its value, renting it out for a good return and then sitting back while the compound growth machine clicks into gear.
Owner occupiers on the other hand need much more than this from a property. They want a place to be easy on the eyes, practical for their work and lifestyle requirements and in possession of a comforting home feel.
For these reasons, buying off the plan is probably easier for the former than the latter.
It is hard to figure out if a place is just right for you when it is nothing more than a blueprint, council plan or artist’s impression. All you can really consider is whether or not the numbers stack up, how likely the developers are to deliver on their promises and whether the contract conditions are beneficial for your situation.
Doing Your Research
The benefits show that buying off the plan can be a strategy that works for many investors. Naturally, you have to do your regular research to ensure that the numbers work for you, including finance, return, growth potential, gearing, depreciation benefits and so on.
In addition, the complex nature of an off the plan purchase means you should conduct a range of other checks to make sure the investment runs as smoothly as you wish.
Choose The property Wisely
For most off the plan developments, it’s a case of first in, best dressed. Penthouse apartments and others with the best views are often snapped up first and may go for more than the other properties within the development. It’s a good idea to go in knowing what you want from your apartment.
Questions to consider include:
- Is it facing towards the nicest aspect?
- Is it removed from noise sources such as busy roads or workshops?
- Is its car space conveniently located?
- Is it as high or low in the building as you would like?
The right choice of apartment can make your purchase worth more than others in the same building, while actually costing the same amount. This maximises its potential for capital growth and rental yields.
Prime Position Is Important
Naturally, there is no point picking the nicest apartment if it’s in a suburb that is likely to stagnate. Your research on the area that the development is in should be the same as if you were buying a property anywhere.
It is important to remember the following:
- An apartment in the development may seem cheap, but it may be over-valued compared to other properties in the suburb
- You may have been promised a high rental yield, but this won’t last if tenants find other properties with less rent
- The suburb itself should have regular growth drivers; such as good amenities, infrastructure, a favourable supply and demand ratio and be close to public transport.
Things to Consider When Buying Off the Plan
According to PRDnationwide national research director Dr Diaswati Mardiasmo buying off-the-plan is “buying a dream’’ while she said buying an established property was buying “the present”.
Dr Mardiasmo reckons there are some questions that all those buying off-the-plan should ask to make sure it all goes smoothly.
- Check out the developer. Find out who the developer is, what else have they done, have they always delivered? Were other buyers happy with the end results?
- What stage is it at? Is there a development approval, has it been put out to tender?
- Who is insuring the development? and what level of insurance is there?
- It goes without saying, ensure you have a Solicitor or Conveyancer check the terms of the agreement to ensure you are protected.
Buying Strata Apartments Off The Plan
Advice on buying strata apartments off the plan from David Bannerman (principal of Bannermans Lawyers, Sydney’s leading Strata Law firm) which specialises in legal services for the Strata, Development, Construction and Insurance industries.
Buying a strata unit off the plan before it has been built has many benefits compared to buying an existing property, but there are some potential risks you should consider, says David Bannerman.
Here is Bannerman’s list of the most important things for intending buyers to consider when buying strata off the plan:
Am I comfortable with the builder and developer? Do the developer and builder have a track record of quality work? Are they financially solvent? These things can be checked easily with online enquiries. Building defect issues are invariably expensive and stressful to resolve. If either becomes insolvent, the project can be cancelled or at least substantially delayed.
Does the builder have home owner warranty insurance? It may be legally required, but overlooked or ignored by the builder. It may not be legally required, e.g. for some multi storey buildings. However, it is very beneficial, as it may provide a remedy if building defects are identified and the developer and builder are insolvent.
Does the time frame under the contract work for me? How long do I have to settle after the strata plan is registered (often as little as 14 days) and is that enough time for my bank? How long do I have to wait for the work to be completed? What happens if it isn’t completed by then? Do I have to wait that long if it becomes clear that the time frame won’t be achieved?
Has the developer provided sufficient information to understand what I am really buying? It can be hard to visualise a completed unit from plans and specifications of inclusions, especially if they are vague.
Do I have a proper understanding of the likely running costs of the building? A buyer can have an unpleasant surprise if levies are underestimated and increase sharply after settlement.
Is the proposed unit entitlement of the apartment appropriate? A buyer’s share of future levies and voting rights will be based on this and it can be difficult to resolve issues down the track.
Will the project be complete on settlement of my purchase or will there be further sales activities or even construction work continuing after that?
Will the building be independently managed, in terms of strata management and building management or does the sale contract give the developer power to lock the owners corporation into contracts?
Will the building have satisfactory by-laws or does the sale contract give the developer power to impose these? These could restrict use of parts of the common property to particular owners or impose other undesirable restrictions, for example, in relation to pets.
Does the contract give the developer the right to make changes to the apartment or building and does it give me adequate rights if this happens? Permitted changes may be excessive and a right of rescission may be inadequate.
Buying Off The Plan First Home Buyer Advantages
While once it was the domain of investors, the massive boom in unit development means more owner occupiers, particularly first timers, are buying off-the-plan.
Many buy off the plan as an investment, but purchasing fresh off the production line can also offer real advantages for first home buyers.
First home buyers are generally short on cash and as a result have difficulty in finding funds quickly that are required for a finished property with a sort term settlement.
Buying off the plan will give a first home buyer time; time to save for settlement, time to plan for settlement, potentially time for capital growth prior to settlement (as most developers offer lower prices and financial incentives at the start and put prices up once construction has commenced) and time to make all the relevant applications for the first homeowners grant.
Buying off the plan will also give a first home buyer advantages not available to a purchaser of finished second hand property, like:
-Stamp duty savings in many instances.
-The ability to customise floor plans and finishes.
-More choice in terms of apartment types, which means greater choice of layouts, views and finishes.
-Easy payment terms with only 10% deposit required and the balance due on settlement.
-Often, interest on deposits can be received when cash deposits are paid.
-Security for deposits as all deposits are held in trust.
-Alternative deposits, which mean you can use a lower cash deposit, a bank guarantee or a deposit bond (project dependent).
Buying Off The Plan First Home Buyer Tips
Get yourself into financial order; know your financial position, your borrowing capacity and the lending policies of the bank in relation to different property types and locations.
Do your research; don’t buy the first property you look at. Understand the median apartment prices growth, vacancy rates, rents, employment statistics and demographics. Get to know the area, transportation linkages, and current and planned infrastructure projects.
Research the development team, who’s going to delivery this project? What’s the track record for the builder, developer, architect and sales agent? Go and visit some of the builder and developers recent projects.
Get proper independent legal advice from a specialist property lawyer before signing anything.
Understand the time frames around the delivery of the project and the sunset dates in the contract of sale.
Buying off the plan will give a first home buyer time.
Consider your possible risks:
– The project may not proceed.
-The finished product may differ to what you anticipated.
-Expected capital growth doesn’t eventuate or value may be less than purchase price.
-You can’t physically walk through the property you are buying.