Buying property off the plan can be an attractive proposition. It gives you time to save for your deposit and there are sometimes stamp duty and other concessions available. There are also a few things that you need to look out for. Here are six things we suggest you keep in mind when buying off the plan.
- Property prices can go down
When you purchase off the plan, months or even years can go past before you finally take possession of your finished property. While the price that you pay may seem reasonable when you sign up, property prices will probably have moved by the time you move in. While the value of a property does often increase over long periods of time, it can also decrease.
Many factors can affect the price of your property over time. While you may not be able to predict things like the economy and interest rates, there are some factors that you can research before purchasing a property. Speak to the local council and find out how many buildings have been approved in the area and whether there are any planned changes. Things like rezoning an area to allow for high-density residential property can result in an oversupply – and if supply is greater than demand it will affect property prices.
- Know your local area
When buying off the plan, it can be difficult to imagine how the property will fit into the local area, especially if you’ve never visited the area. The local area surrounding your property not only influences the value of your investment but also whether you’ll enjoy living there. It’s always worthwhile to take a walk around the area where the property will be built to get a feel for it. Are there shops, public transport, schools and other amenities nearby? Are there any industrial areas that may create noise or pollution? What kind of neighbours will you have? With this in mind, you can get a feel for whether you think you’ll like living there.
- Compare apples with apples
One of the biggest challenges when buying off the plan is trying to visualise the size of the property you’re purchasing. While display units can give you an idea, they’re rarely the same size as the final property. To make sure you’re comparing like for like when looking at different properties, compare the dollars per square metre. To do this, take the price of the property you’re interested in and divide it by its square metres. You can then accurately compare different off the plan properties for value and size. Buyers should be wary of discrepancies between the advertised sizes and the as-built sizes. The method of measurement used by vendors and developers often exaggerate the area and size of properties. Some methods of measurement include wall cavities which can misrepresent the size.
Also, ask what kind of fees you’ll be expected to pay when the property is completed. Some properties have several different types including maintenance, building funds and body corporate fees. If you know what these are you can then compare them to other properties you’re looking at.
- Read the fine print
Purchasing a property off the plan often involves some complex terms and contractual obligations. This is because there’s always an element of the unknown – developers go bust, timelines get pushed out and fixtures and fittings differ from specifications. That’s why it’s important to read the contract carefully and make sure you understand what your rights are in case the unexpected does happen.
Some of the key things to look for include whether the developer can change the type of fittings you receive or the floor plan of your property. It is possible to think you’re getting German appliances and end up with an inferior product or for your property to be 10% smaller than you expected.
Another common clause that can cause issues is the sunset date. This is the date by which the developer must complete the building. The clause often includes details of when you can get your deposit back if the date is not met. In some situations, developers may actually try to delay completing a building, particularly if property prices in the area have increased considerably. This is because they may want to sell your property to someone else at a higher price.
These clauses are often quite complicated, which is why it’s a good idea to get your contract reviewed by a property lawyer.
- Get to know your developer
The developer is an important player when buying off the plan. They’re not only responsible for designing the property but for making sure it’s completed properly. It’s important to take the time to research the developer and make sure that they have a good reputation. There are several ways you can do this.
Take to Google and search for the developer’s name or speak to Consumer Affairs Victoria. This may surface any complaints or court cases that they have against them. You can also ask the developer about their experience and request to see other projects that they’ve completed.
If your purchase involves construction, you should also conduct some research on the builder to find out more about their experience and reputation.
- Get your finances in order
When you purchase off the plan, it may be months or years before you need to finalise your home loan, but it’s important to get your finances in order before signing on the dotted line. This includes doing your sums and making sure that you’ll be able to afford the property.
It’s also a good idea to speak to your lender to make sure that you can borrow the amount you want. This is particularly important when buying off the plan for several reasons.
Many lenders restrict how many properties they will finance within one development. So you may find that you’re preferred lender refuses to give you a home loan because they’ve already filled their quota for your development. Another issue that can affect your ability to take out a home loan is the value of the property. While you know what this is when you purchase, this can change by the time you’re ready to take out a home loan. If the property value has decreased, you may not be able to borrow as much as you had hoped, so it’s good to have some contingencies in place in case this happens.
By taking these tips into account when buying a property off the plan you can make sure your investment pays off. And if you want to make sure you have all your legal bases covered, get in touch, we’d be happy to help.
Author bio
Kenneth Santos is an experienced conveyancing clerk at Provey Conveyancing Melbourne with a bachelors in Criminology at Deakin University. Kenneth is a passionate leader with a talent for public speaking and loves keeping up with the latest technology.
