Your solicitor will probably tell you not to buy off-the-plan.

Your friends will think you’re nuts.

The media loves a bad off-the-plan story, so they’re not going to give you a balanced argument to do it either.

But is it really a bad idea? Or are they, like many people, just imagining only what can go wrong without having the experience to properly weigh up the pros and cons?

Fact is, in the past there was a fair degree of uncertainty with off-the-plan developments, but a lot has changed in recent years. The cons have decreased. There are more pros now. More consumer protection built into the contracts. More ways to thoroughly research the project, developer and builder.

People often ask for our guidance when it comes to buying off-the-plan. So here are our thoughts on off-the-plan buying…

Firstly, let’s start with an explanation of what buying off-the-plan means. Then, we’ll go over the pros and cons, so that you can be better equipped to make an informed decision about whether buying off-the-plan is a good idea (for you) – because, as with most things when it comes to buying property, there’s always pros and cons.

Here’s what you should consider…

There are lots of benefits to buying off-the-plan but buying your new home when you can’t actually walk into it, touch it, see it for yourself makes the process of buying more difficult.

What does it actually mean to ‘buy off-the-plan’?

Buying off-the-plan is when you contract to purchase a property which is not built yet.

Without the finished built property to inspect, buyers are reliant on the plans, schedule of inclusions and finishes, computer graphic images (CGI), colour boards, in the case of larger projects a scale model and a display suite with, say, example kitchen and bathroom of how the apartment should look. Plus, you’ll be provided information about the developer, the builder and construction time frame.

PROS FOR BUYING OFF-THE-PLAN

YOU’RE BUYING TIME — The main advantage to buying off-the-plan is that you are buying a property that you won’t take delivery of for some time. If you buy early in the project, it might be a year or two before you take delivery of your new home.

The great thing about that is, it gives you time to prepare for your downsizing move. Such as, getting your current home ready for market. Most off-the-plan buyers love that they aren’t rushed in having to get all their financials in order.

LOCK IN A PRICE — Buying off-the-plan means you get to lock in a price at today’s market level when you sign the contract. If the market goes up, and let’s face it, it usually does, you’re protecting yourself against future price hikes.

We’ve seen it before where off-the-plan buyers enjoy significant increase in the market value of the property they’ve purchased during the time it takes for the developer to build the new home. This is especially applicable to owner-occupier, high quality boutique projects in great locations.

PAY THE DEPOSIT, NOTHING MORE TO PAY UNTIL SETTLEMENT — Usually you’ll be asked to put down an initial deposit of, say, $5,000 when you sign an ‘Expression of Interest’ (EOI).

Next, a contract is prepared and after your solicitor checks it and is satisfied with the terms and conditions, you’ll be asked to pay the balance of deposit of 10% of the purchase price.

After that, there are no progress payments. You just pay the balance of the purchase price on settlement (plus transfer duty and your legals). Again, this provides you time to have your financials all sorted by the time your new home is built.

MORE CHOICE WHEN BUYING EARLY — A great thing about buying off-the-plan is that you usually have more choice than someone who waits for the project to be built. You get to choose the best floor plan that matches your needs. You get to select the colour scheme you want. You may even be able to customise the layout and finishes.

EARLYBIRD DISCOUNT — The old adage, “first in, best dressed” certainly applies to off-the-plan buyers. Not only do you get to pick and choose from everything that’s available, often, developers are more willing to discount the first few sales to help their project build sales momentum.

Ok that sounds all great, right? But what about the risks associated with buying off-the-plan?

Let’s be honest, there’s always some risk in every real estate transaction regardless of it being an off-the-plan or existing property purchase. If we had to say what are the most likely potential risks, here’s what we know…

CONS FOR BUYING OFF-THE-PLAN

SUNSET CLAUSE — Off-the-plan contracts have a sunset clause (or sunset period) which is the maximum amount of time given to the developer to complete the project.

This period of time is stated within the contract of sale and gives the purchaser, builder or developer rights to cancel the contract under certain circumstances. For Queensland off-the-plan contracts, the maximum time is five-and-a-half years.

Although your deposit is refunded, the risk here is you buy something that takes longer than you expect to be delivered. If the development doesn’t get started by the sunset date you or the developer can terminate the contract in which event you get your deposit back.

The best way to avoid this is either negotiate a shorter sunset period and or choose a developer with a track record of delivering on time. Smaller, high quality boutique owner-occupier projects by a reputable developer and builder are rarely an issue when it comes to this clause.

FALLING PRICES — Another concern is paying a lot more for a property than it’s worth by the time you move in, if property prices drop during the time it takes to build the project.

And so, if you’re someone who’s looking to buy and sell a property fairly quickly, buying off-the-plan is probably not a good idea during a market downtown. The good news is prices tend to go up over time. Even if there’s a market downturn, time heals, and prices go up eventually. Buying off-the-plan works well for owner occupiers with a medium to long term view. Besides, all property is affected by downturns so there’s no way of avoiding them other than not owning property (not a good idea).

DEVELOPER/BUILDER GOES BANKRUPT — Before you sign a contract, check out the financials of the developer and especially the builder. Your deposit will be held in a lawyer’s trust account so generally speaking your deposit is protected if something goes wrong. These days though, banks rarely provide construction finance without carefully scrutinising both the developer’s and builder’s balance sheet.

POOR WORKMANSHIP — Off-the-plan buyers should look at both the developer’s and builder’s past projects. Try Googling them. Look for negative media reports and reviews. A sales display is also a good way to assess their workmanship. If they can’t get that right, what hope is there that they’ll deliver a quality product?

Your contract should also protect you against under delivery. Ask your lawyer to explain what protections are provided in the contract. Most contracts will contain consumer protection clauses. One such clause covers ‘material change’. If for example the developer replaces the high-end European appliances promised with an inferior range of appliances, you’ll be able to seek a remedy or compensation. In extreme cases you may be able to terminate the contract.

Again, the easy way to avoid this is to only buy from a reputable developer and builder.

OVER-PROMISING, UNDER-DELIVERING — This could be THE biggest con for buying off-the-plan. It does happen. But usually only when a buyer hasn’t thoroughly researched the developer and builder.

These days developers use highly accurate computer graphic images (CGI) to provide buyers with a visual reference to what the end result is going to look like.

A simple way to determine the accuracy of these marketing images is to ask for ‘before and after’ images of past projects the developer has undertaken.

Another thing to consider are the floor plans. Ask: “are they to scale?”, “what is the scale?” and “is the furniture drawn into the floor plans to scale?”. Scale floor plans that include dimensions will reduce the risk of disappointment.

Want to know more about the pros and cons of buying off the plan? Ask us a question using the form below.

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Peter Hutton

Peter Hutton

With the simple but unique vision to embrace a philosophy of perfect service, Peter Hutton challenges the ‘one-size-fits-all’ approach with a hands-on, creative methodology to selling high-design real estate. Peter’s passion for real estate manifested itself by the age of 7, when in the late 60’s playing with the kids in the street, he subdivided square metre blocks of dirt with twigs for corner markers and sold them to his mates for Ekka spending money.