Call us now 1300-889-743

Tips For Buying Off The Plan

Couple planning their new unitShould you buy a new or established property?

Many first home buyers and investors choose to buy a new property but few of them have investigated if this is the right choice for them or know which property to buy.

Who should buy off the plan?

Not everyone gets the same benefits from buying off the plan. Buying a new property is often better for:

  • First home buyers: You may receive additional government grants but you also need to take extra care of the risks.
  • Foreign investors: Most property investors that are foreign citizens are only allowed to buy a new property.
  • High income earners: Buying a new property can give you bigger depreciation and negative gearing benefits.
  • Time poor investors: You can get someone else to source the property and arrange it all for you. Just be careful who you choose!

If you know what you are doing then you can buy a property for less. Often though, many people end up paying more because they don’t do their research properly.

What are the essential tips?

Buy early in the project

If you are one of the first to buy in a project then you can often get a better price. You can also choose the best unit in the block.

Use comparable sales

Don’t just compare your apartment to others that have sold in the development. Ask one of our mortgage brokers for a list of properties that have sold within the area and compare them to your apartment. You can read this guide for more information.

Buy as a group

Do you have some friends who also want to buy investment properties? If a group of you approach a developer then, in some cases, you can negotiate a better discount. This has the added advantage that in the future you will have a bigger say in the way the strata manager runs the block.

Learn about government grants

Almost all states are eager to increase the supply of new housing. One of the best ways for them to do this is by offering incentives to people who buy a new property, in particular, first home buyers.

You should check the grants in your state and find out if you are eligible for any of them. Sometimes investors are eligible too!

Analyse the building plans

What is the aspect of the building? In the southern hemisphere it is best to buy a northerly facing apartment to get more sun in winter. Aside from this, consider the view, layout, parking, common areas and proposed finishes of your apartment. Some developers can give you the option to upgrade the finishes which may be a good idea if you plan to live in the property.

What’s happening in the area?

Try to buy in areas that are improving in some way. It may be that the demographics are changing, the lower income residents are moving out and young professionals are moving in. Infrastructure projects like new railway lines, shopping centres, parks or roads can also make a big difference to prices.

Claim your depreciation

If your property is an investment, you can claim the depreciation on the building. In most cases the developer can give you a copy of their quantity surveyor (QS) report or you can use the same QS to provide a depreciation schedule for tax purposes. Give this to your accountant and they’ll take care of the rest.

What should you look out for?

Check out your developer

What’s the reputation of your developer like? A quick online search for their name, the name of the builder and the name of the project marketer / real estate agent should be sufficient to see if they are good guys or not.

If you need help finding someone reputable then fill in this form and we’ll put you in touch with a reputable company that sources off the plan properties.

What projects are planned nearby?

If the development you are buying in has a lot of other developments nearby, it could mean there are a glut of apartments on the market. This oversupply can cause prices to stagnate or fall in the short to medium term. In the long term, however, it is the overall quality of the developments in the area that matter most.

Home Warranty Insurance (HWI)

If there are defects in the building that need to be rectified and the builder becomes insolvent or disappears, HWI will protect you as the buyer. The regulations vary between different states so you should investigate with the relevant state government once you have decided where to buy.

Although it isn’t essential for the developer to have HWI, it is certainly better for you if they have it.

The sunset date in your contract

The sunset date is the final date that the developer can complete the building. If they don’t complete it by this date then you have the right to exit the contract and have your deposit refunded.

An excessively late sunset date can give you uncertainty as to when the building will become yours and it can also increase the cost of your deposit bond (if applicable). Refer to your contract of sale and conveyancer for more information.

Do you need a quote for a deposit bond? Our deposit bond calculator can work it out for you by providing you with a quote from several insurers.
Cashback offers / builder incentives

Be wary of marketing tactics such as the developer paying the stamp duty or giving you a cashback after settlement. There’s no free lunch! In particular, this may cause your bank to deduct the value of the incentive from their valuation, hence, resulting in the bank lending you less.

Financing your purchase

Can you get approved for a home loan when the time comes to settle on your property? If not then you may lose your deposit. You can refer to our page about home loans for off the plan units for more information.

You should have additional funds ready just in case the valuation comes in low. In addition, don’t change jobs in the six months before settlement! Some investors come unstuck because they buy several off the plan properties at one time and then, as they take out additional investment loans, they no longer have the borrowing power to complete their later purchases.

In some cases, we can get one of our lenders to issue an approval up to 18 months before settlement which can reduce your risk. You should talk to us if there are any significant changes in your employment, debts or living expenses between the time when you sign the contact and settle on the apartment.

Check the contract of sale

There are plenty of things that can catch you out in the contract. From your deposit being released to the developer early to the developer being allowed to make certain changes to the plans without your authorisation. Get your conveyancer or solicitor to review the contract in detail before you sign.

How big is the development?

Large developments tend have good marketing capabilities that hype up the market and inflate the price. In addition, the larger the development, the more things can go wrong! Many have lifts, pools and gyms which can significantly increase the strata levies in a few years time. There is nothing wrong with buying into a large development: just be cautious!

Buying interstate

Buying interstate isn’t a bad thing. We’re not saying that if you are from Sydney or Melbourne that that is where you should buy. Often, the property market on the other side of Australia is looking much more promising. However, you don’t know the market on the ground level so you should do additional price research to make sure that you aren’t being ripped off.

Foreign investors

We see many foreign investors, particularly from China, that end up paying too much for a new apartment. The market in Australia is different to China so buying the best quality new apartment in a high rise building isn’t always the best investment strategy. In fact, we find that smaller developments tend to perform better.

Please fill in this form and we can put you in touch with a reputable company that can find a good investment for you. We also specialise in lending to overseas investors.

The layout of your unit

Does the layout of your apartment make sense? Or is your unit the one that they had to squash in to make it all work? Look at the bedroom size and consider if this can fit a standard size bed. Consider the windows, lighting, ceiling height and if your unit will be affected by noise such as the lifts or people coming in and out of the front doors.

How can we help you?

Firstly, we are experts in getting a home loan approved for an apartment that is a long time from settling. This can significantly reduce the risk of buying off the plan.

Secondly, we can put you in touch with companies that source quality developments for investors. We’d rather you buy from a trusted source than have your purchase be a disaster. In particular, they can find properties in Sydney, Melbourne, Brisbane, Perth and other capital cities which you may not be familiar with.

Speak to our mortgage brokers by calling 1300 889 743 or fill in our free assessment form to find out which mortgages you can qualify for.