5 pro tips for buying off plan and potential costs to be aware of
Category Advice
Buying off plan is a very popular option for investors as well as prospective homeowners looking for that brand new property experience. In addition to the financial and lifestyle benefits, however, there are a few pitfalls to be aware of.
Here are some top tips on dodging the dangers and making your off-plan purchase an all-round success.
Choose a reputable developer.
Buying off plan means making a purchase decision based solely on the plans and marketing material your developer shows you. That's a big leap of faith, with a lot of money at stake.
To make sure your trust is well-placed, it's essential to do a thorough background check on your developer.
Ideally, your developer should have a solid track-record of successful developments that continue to appreciate well. This is a good indication that their build quality is high, and that their designs hold value.
It is suggested to visit the developer's previous projects and chatting to past investors if possible.
Ask about their purchase experience, any project delays, any discrepancies between marketing material and reality, and how good their aftersales service was, if it was necessary.
Make the best of easy financing.
According to Jacobs, reputable developers will often approach banks to have their developments preapproved. This gives banks a chance to confirm that purchases within the development are likely to be financially successful.
When banks have confidence in a development's potential, they are often willing to give qualified buyers very favourable interest rates.
Getting preapproved puts those buyers in an even stronger negotiating position. However, they still need to be aware of a few potential downsides.
It's worth noting that bank finance offers typically expire after three or six months. If there are delays with a development, there is a chance your offer could expire. In these cases, it can be very useful having a bond originator at your side to help get a new offer finalised before it causes any issues.
Know where the savings are.
Off-plan purchases may appear a little pricier than other, similar properties, but this is often an illusion.
Ordinary property purchases are subject to transfer duty and a number of other hefty fees that aren't included in the purchase price. Off plan purchases, on the other hand, tend to include VAT - which replaces transfer duty - as well as certain fees in the price tag. That means you don't need to budget for those extra expenses on top of the purchase price.
Being newly built means buyers also don't need to budget for upgrades or repairs on transfer - particularly since off plan purchases are protected by the CPA.
Developers are legally required to fix deviations from plan within 3 months of transfer, repair substandard work or defects within a year, and fix any structural defects that emerge within five years.
Get a jump on capital appreciation.
Cost savings aren't the only financial incentives to buy off plan. Capital appreciation on new developments can also be extremely enticing.
The earlier you buy into the development, the better, not only because you can get your pick of units at launch-price specials, but also because you extend the period of capital appreciation that happens before you take ownership.
Because off-plan purchases are secured with a deposit, and the balance is only due on completion, Buyers often benefit from at least 18 to 24 months of "free" capital growth during construction.
That early period often sees the fastest growth in property values. By the time transfer happens and buyers have to start paying off their bonds, it may already be possible to sell for a significant profit.
Budget for occupational rent.
The financial benefits of buying off plan can be huge, but there are some potential costs to be aware of as well.
With any property sale, it's almost impossible to guarantee that date of occupation and date of transfer coincide. In the event that a buyer is contractually obligated to take occupation before transfer happens, they will be liable to pay occupational rent to the developer - regardless of whether they actually move in.
Occupational rent can be negotiated down, or even away, at offer stage. However, most developers insist on rates that match rental values for similar properties in the area, and buyers should budget accordingly.
Generally, developers are very motivated to finalise transfers as fast as possible, so you shouldn't be paying occupation rent for any longer than absolutely necessary. That said, if you're worried about being taken for a ride, put a clause in your offer to purchase that limits the period you are liable for occupational rent to a maximum of three or six months.
Extract From Property 24
Author: Extract from Property 24
