Buying Off The Plan

Buying Off The Plan basically means entering a contract to buy a property from a developer prior to its construction. The property must be built from a subdivision plan and will be commonly be a unit or townhouse. A subdivision is a block of land that has been divided into lots (parcels of land varying in size). The developer will generally offer you a lower purchase price than what its expected market value on completion will be.

It can be very fruitful in a rising property market by buying off the plan. Since you lock in the purchase price early prior to construction,  if the market has risen  after a couple of years  when the property has been finally built, it  will be worth more than what it has been bought for.  However one needs to do their market research to at least ensure that this will be the case. For if research is not done, then the market can also drop and the buyer ends up with a property that is worth less for what they bought it at initially. So you can end up owing more than what it is worth.

In some states of Australia buying a property off the plan can save you thousands in stamp duty. As a result by buying off the plan, one only pays stamp duty on the vacant land (not the entire entity). Also significant tax deductions can be obtained by buying a new property,  as one can claim deductions for depreciation on the building and its fittings.

Generally on contract signing you will pay 10% on deposit and the stamp duty (if applicable in that state) say 3 months after signing.  The deposit can usually be secured via a deposit bond or bank guarantee. Once the buyer has received finance approval, the buyer can approach a bond provider. The bond gives the buyer the right to buy the property without dipping into their savings. Also the delay in settlement gives you more time to save for future mortgage payments. The delayed settlement from date of purchase can sometimes be up to 2  years.  Usually a normal mortgage is used to finance the property that you are purchasing.  Once the property is 100% completed the balance can then be paid.

It also pays to do research on the developer. If possible see if you can visit the last project that they have built to see how the project was finished, and if possible see if one can talk to the buyers in that project to see if there was any issues. Oh and one last thing please seek professional accounting and legal advice prior to acting on any of this information to see if buying off the plan suits your particular situation (refer to my disclaimer in my profile).