For many first home buyers, and even those looking to buy an investment property, buying off the plan can be an attractive proposition; it lets you buy a property at a set price before it’s even been built. While there are a number of benefits to this type of purchase, it’s not without its challenges. Take a look at some of the things you need to know before you buy off the plan.
Know the risks
One of the benefits of buying off the plan is the long settlement period while the development is being built. It gives you time to get your finances in order and, provided the market is buoyant, your property should increase in value over time.
Conversely, if the market falls during the time it takes to build your property, you could struggle to sell and recoup your costs. Other risks include the property not meeting your expectations once built, the development taking longer than anticipated to complete, and the developer’s business failing midway through the project.
Be aware, that you’ll be required to pay a deposit up front and show that you have the necessary finance in place to pay the balance due on completion.
Do your homework
If you decide to go ahead with buying a property off the plan, start by doing some serious research. Find out all you can about the developer and construction firm you’ll be buying from. What are their track records like? What other developments are they or have they been involved in?
Use Google to search or check the Companies Office to find out who the directors and shareholders of the company are, and check whether any of those involved have ever been bankrupt. You need to be confident that the people you’re paying are going to deliver on their promises.
Remember, when buying off the plan you need to exercise the same due diligence you would as buying an existing property.
Check the details
Most contracts allow the developer to make any changes without your consent, even altering the size of the unit you’ve purchased by up to 5 per cent. Other changes they could make include the layout, the materials to be used, and any finishes. Be aware that what you see in those first glossy brochures may not be what you get once your property is completed.
Check that your deposit is held in a third party’s trust account (a lawyer or solicitor) so you earn interest on that money. Your deposit cannot be used to fund the development, and most developments will only proceed once a certain number of units have been sold off the plan.
Delays are inevitable when it comes to property development, so check that your contract includes a “sunset clause” which lets you cancel and get your deposit back if the developer does not make enough progress in a certain timeframe.
You’re also entitled to a 14-day cooling off period during which time you can cancel the contract should you change your mind.
Finances in order
If buying off the plan is an option you’d like to explore and you’d like to find out about financing a newly built home, get in touch with a Mortgage Express adviser and let’s get your finances in order.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
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