Off-the-plan properties have received plenty of flak in recent years, yet Australian investors continue to buy new properties in droves. Here's how you can reap the benefits of doing so too, while avoiding any pitfalls along the way.
Blogger: Zaki Ameer, founder, Dream Design Property
Reasons to avoid off-the-plan properties have been well documented, and top experts strongly advise against this kind of investment. Despite such drawbacks, off-the-plan properties remain a popular investment option for Australians, particularly among first home buyers as they provide ample time to save for settlement.
Ultimately, all investors face the same complications and risks involved in purchasing property off the plan.
I have felt this negative sentiment towards off-the-plan property investment since the beginning of my career in real estate. Among other potential pitfalls, I believe the main risk involved in this type of property purchase is the uncertainty around whether the buyer is receiving a good deal in the first place.
Over the past three years, my team at Dream Design Property and I have invested in hundreds of properties on behalf of our clients, the goal being a balanced property portfolio that includes new and existing properties.
However, these new properties carry the most risks, ones that our team is not in favour of. In order to address these challenges head-on, our organisation launched Dream Design Property Developments this month, a service designed to reduce the risk involved in purchasing off-the-plan property.
To ensure our clients and others who are looking to invest are wary when investigating off-the-plan options, here are some of my tips for obtaining the best deal:
1. Be cautious when choosing a developer. It is essential to perform a background check on a developer before entering into a contract. Researching past projects and assessing the chances of the developer going into liquidation before the project is complete is a must.
If you are doing this without the assistance from an expert, visit any of the developer’s previous work to inspect the quality, and seek references from previous clients. If you prefer to outsource this process, services like Dream Design Property Developments will ensure the developers are of the highest standard.
2. Be wise when choosing your property agent. Agents have been known to wine and dine clients, fly them to the development site and accommodate them in 5-star hotels in order to have them purchase the property. Be aware that these costs and extravagances are most likely packaged into the purchase price of the property. You should look for agents that are open and genuine, and clearly have nothing to hide from you.
3. Don’t rely on rental guarantees. Developers are known to entice buyers by offering a rental guarantee for the first one or two years after completion. Once this period is complete, however, many owners find that the tenant has been paying a significantly low rent, with the developer subsidising the difference and factoring this into the purchase price of the property. As tempting as rental guarantees may sound, it is vital that you check the numbers add up before accepting.
4. Prepare for potential financial risks. No property investment is immune to the fluctuating property market, including off-the-plan properties. If the value of the investment property does fall, it will usually occur between the point of purchase and the point of completion. To lessen the financial risks involved, partner with a company guaranteed to save you money in at least one area of the transaction.
5. Seek legal advice. It is crucial to gain legal advice, particularly for first home buyers. Before signing anything or handing over large sums of money, it is wise to have a solicitor look over all the contracts and documents.
Ensure the contract contains a “funds set” or a “drop dead” clause outlining the date the property must be finished by. If this is not met, you should be able to withdraw if necessary, and have your deposit refunded. Other important clauses should relate to “acquisition” and “commencement”, as well as your rights to resell the property.