Buying Off The Plan: What You Need To Know
Buying off the plan means you’re purchasing a property that has building approval but needs construction. For many people, this form of buying a home is too risky because they cannot see the property before purchasing.
However, for those of you who are risk takers, the benefits of buying off the plan can outweigh the disadvantages, providing that you’ve carried out adequate research into the developer, builder and also the location. These formalities will prevent you from encountering difficulties later into the build. But here’s the kicker: rather than leaping at an off the plan build opportunity, there are several ‘musts’ that you should do.
Four ‘Musts’ Before Buying Off the Plan
Before you buy property off the plan, you need to carry out four important actions. These include:
1. Cost calculating
Off the plan builds often have hidden costs that are not disclosed at the time of buying. So, to avoid over-inflated costs, make sure you know what costs are involved for you, and how you’re going to pay for these.
Off the plan property costs typically include:
Corporate body payments.
2. Understand incentives
Off the plan incentives are many. So, ask about each incentive, and then find out if you’re eligible for these. Current first home buyer incentives in many Australian states and territories hover around $10,000. Plus, stamp duty concessions may also apply to your property if it’s under a specific value. For instance, in New South Wales, the stamp duty concession currently applies to homes priced up to $650,000.
3. Review your finances
Before you jump into buying a property you need to look at whether or not you can afford to make the required repayments on the property. It’s also essential to ascertain if your preferred lender offers finance on off the plan purchases, as some lenders are apprehensive to approve off the plan finance due to the risks involved. However, some lenders specialise in this type of property and offer competitive rates.
Though before you visit a lender it’s advisable to look at how much you could borrow. You can use a borrowing calculator to determine what your borrowing power is, based on your existing financial commitment, your number of dependents, and your level of income and living expenses. Just be mindful that your credit card limit, credit rating and outstanding loans may reduce your borrowing power.
4. Know the market
The property market is ever-changing, and it cycles with peaks and troughs that sees dwelling values rise and then fall. So, it’s vital that you’re market aware and know what represents value for money. Failing to be market savvy can be very costly, especially if you buy when the market is peaking and pay an over-inflated cost that is much higher than when your property is finished 2-months later.
Other considerations you need to make include paying for the deposit and signing the contract. Let’s look at these now.
When Do I Need to Pay the Deposit for Buying Off the Plan?
The payment of the off the plan deposit is made at the time of contract signing and can be anywhere from 5% to 20% of the purchase price. Most of the time this money is held in trust until after the completion of the dwelling. With an off the plan property sometimes taking 12-months or longer to build, it’s crucial for you to ask who is entitled to the interest earned on your deposit, you, the seller or both. Details of who receives the deposit interest should be in your contract.
What Should a Buying Off the Plan Contract Contain?
It’s also vital for you to look at the contract terms and conditions before signing it, and if you’re not sure about specific terms or conditions, then seek legal advice. Some of the most significant contract considerations include:
The cooling off period
Off the plan cooling off periods usually span over 3 to 5-days in most states. However, if you change your mind about your purchase during this period, you may be charged a termination penalty by the developer, which can be up to 0.25% of the property’s purchase price. While this doesn’t sound like much initially, it can still add up to thousands if you’re buying an expensive property. For instance, let’s say that you’re buying an apartment for $950,000. Then, the 0.25% termination cost would equate to $2,375.00.
Your contract should state a date of completion, and the acceptable length of extensions, should the project not go as planned. The completion time should also contain a clause that specifies that if the builder or developer cannot complete the property within the specified timeframe that they are entitled to a refund of their deposit.
Defects and Warranties
Your contract should also stipulate the warranty period for the structural aspects of the dwelling and what happens if the specified materials are not available at the time of construction. Typically, an off the plan contract will state that the builder can select other materials of a similar, but not a lesser value, as a substitute. Plus, the contract should also include solutions for defects should these arise.
You might be wondering: how can you find out more about buying off the plan? Then pay Fair Trading a visit before committing. This site can help you understand more about the risks and the tactics that some developers use to market their homes.