With inner-city development ramping up across Australia’s capital cities, investors will increasingly be confronted with off-the-plan investment options, but can buying into a developer’s dream benefit your bottom line?
With inner-city development ramping up across Australia’s capital cities, investors will increasingly be confronted with off-the-plan investment options, but can buying into a developer’s dream benefit your bottom line?
Buying off-the-plan is the process of buying a property before it has been built, or one that is under construction. The buyer will make their decision to purchase based on architectural plans, internal finishes and high-quality 3D renders (images), rather than inspecting a finished product.
Purchasing a property is already a daunting and challenging experience and the concept of buying something before it has even been started can be overwhelming. Buying off-the- plan can present some great opportunities, but there are also a lot of pitfalls to be aware of.
The benefits
There are many advantages that come with buying off-the-plan, and money is a prominent factor.
First and foremost, you are buying a product at today’s prices, which will be delivered in the future. Off-the-plan purchases require just a 10 per cent deposit, which is held in a trust account until the property settles. The remainder of the property’s price is not due until this point, giving the buyer time to save.
Furthermore, off-the-plan property is generally competitively priced. The developer needs to make sure a certain number of sales are achieved to gain construction finance, and as a result they do not want to repel buyers with an overpriced product. Off-the-plan real estate must not only compete with the existing property market, but also other off-plan projects, meaning price point is an important feature.
If you can secure a competitively priced off-the-plan property, you have the potential to make a lot of money from your investment. If you buy in the right place at the right time, chances are the value of your property will be much higher when it is completed, compared to when you bought it. New properties will also profit from substantial tax benefits. As an investor, depreciation and the potential to write-off the expenses associated with buying new real estate, far outweighs the benefits associated with a resold property.
Aside from the finance factor, purchasing off-the-plan can give you some unique opportunities. You could be the first person to buy into the next big project in the next big location. And, if you buy early enough, you can pick whichever apartment you like, which gives you a say over location, views, and finishes. In some cases, buyers have the power to change elements of the property before it is constructed. This can include things like colour schemes, minor changes in floor plans or upgrades on the apartment finishes. In some instances, the developer will allow a buyer to purchase two adjacent apartments and join them together, creating a unique apartment within the complex.
The risks
We’ve seen that there are a number of bonuses associated with buying pre-construction, but as always, there are risks involved too.
Essentially, you are buying a product you have not yet seen. Therefore, there is a chance that your property may not turn out exactly how you hope it will, and despite 3D models and samples, sometimes there are elements that will be too hard to envisage.
For example, although artist impressions, mock-ups and apartment outlooks are usually provided in marketing collateral, it can be di fficult to determine view corridors from an o ff-the-plan purchase. It can also be hard to judge the noise, ambiance and general aesthetics of the project before it has been built.
Another risk faced by those buying o ff-the-plan, is the danger that your property may never be built. Most developers need a certain number of pre-sales before construction can begin. There is a possibility that these sales will not be achieved and the project will e ffectively be postponed. The worst case scenario is that construction will never even start. Although you will get your deposit back, you will have wasted a lot of time and now have to begin the search process all over again. In some cases, the developer can take longer than expected to complete construction of the project, which is inconvenient to you as the buyer. For this reason I highly recommend thoroughly researching the developer and their past projects before making any o ff-the-plan commitments.
Although paying today’s prices for tomorrow’s product is generally considered a key bene fit of buying o ff-the-plan, this can, unfortunately, be a double-edged sword. Given that property is subject to changes in the greater economy (like all assets), in a volatile and fluctuating market there is the risk that upon settlement, an o ff-the-plan apartment may be worth less than the amount you paid for it.
Getting it right
Your trusted advisers are crucial when it comes to purchasing a property o ff-the-plan. It is vital to consult o ff- the-plan and investment specialists – someone who can go through the basics in detail and explain all of your investment options. You will also need good legal advice, as the contract required for an o ff-the-plan sale is more detailed than a regular contract. It outlines everything you are buying including a schedule of finishes, and subsequently should be reviewed by a solicitor who specialises in o ff-the-plan sales.
All in all, the more work you do upfront the easier the process will be down the track.
Lachlan Walker
Lachlan Walker is head of the Place Advisory division at Place Projects, Brisbane’s premiere project marketing company. Lachlan is recognised as one of Queensland’s preeminent residential property market experts, specialising in South East Queensland residential property.
His role is to provide product specific advice to clients by gathering and applying internal and external market intelligence which is translated into meaningful market reports. He is widely published and is continually called upon to provide commentary on the residential market by various media and property journalists nationally.
Lachlan has extensive experience in property market research and has provided professional consultancy and advisory services to leading property clients including the likes of Leighton Properties, Lend Lease, Watpac, FKP, Brisbane Housing Company and Consolidated Properties.
Visit www.placeprojects.com.au for more information.
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