Risks and benefits of buying off-the-plan

Buying property off-the-plan is sometimes viewed as a risky investment strategy, but several buyers have used this purchasing process to get ahead of the market.

Benefits of buying off-the-plan

• First home buyers are often short on cash, and in turn find it difficult to have funds ready for a short-term settlement. Purchasing off-the-plan buys time as there is a much longer settlement term

• The maximum deposit for off-the-plan purchases is 10 per cent, with the balance due on settlement. This gives buyers time to shop around for the right mortgage

• In some cases, buyers may be entitled to any interest that the deposit has accumulated at the time of settlement

• When signing a contract for an off-the-plan property, you are agreeing to current market prices. More often than not, the market will have grown by the date of completion, creating instant capital growth

• Off-the-plan properties are customisable. From selecting the position of the apartment, to the appliances and finishes, each buyer has a say in the end result of their individual apartment

• Brand-new properties in Australia come with a seven-year builders’ guarantee for structural or interior building faults

Risks of buying off-the-plan

• Completion is not guaranteed. There is a chance that the project could fall through in the case that the developer is forced to file for bankruptcy

• The end result can often be different to the original plan. Developers reserve the right to make changes where necessary, as unexpected issues may arise during the building of the development

• There is a chance that the market could fall, meaning you will end up paying above market price upon completion of your off-the-plan property. This can have serious implications when you’re seeking to complete your purchase. If the bank valuation comes in lower than you anticipated, you may struggle to get finance and face delays at settlement

• It is difficult to measure the resale value of off-the-plan properties – particularly if the area is experiencing a surge in development. When you’re buying off-the-plan for investment purposes, it’s important to look at how the development (and any others in the pipeline) could affect the area’s property values

• Risk of disappointment. As you are buying site-unseen, the finished product may not match your expectations

• Development time frames can continually be delayed. This is completely within the developer’s right

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