Basically, purchasing off-the-plan means you are buying a property that has not yet been built. The development can take a few years from the signing of the contract, which usually provides an estimated completion date.
I get plenty of first home owners utilising this method of purchasing their first property, given the reduced costs (more on that below). The idea is great, but there are plenty of factors that you need to be mindful of when deciding whether to make this investment. Here are a few:
1. Stamp Duty saving
If you are buying off-the-plan property in Victoria there are substantial stamp duty savings available. The Victorian Government in an attempt to encourage new development has reduced stamp duty if you purchase before the property is built. Stamp duty always seems to always be a killer for first home buyers, who aren't aware of this extra cost for purchasing property, so this is a significant factor to take into account.
You have the ability to own a property worth more than you paid for it by the time you actually live in it. In the meantime, especially in our rising market, you can enjoy the benefit of any capital growth that occurs on the property.
3. Extra time
Buying off-the-plan will allow you to enter the difficult property market without having to save as much before signing the contract. While the deposit needs to be paid when the contract is signed, the balance of the purchase price does not have to be paid until construction is complete. This means you don’t actually need your bank finance until settlement. Since construction can take 18 months or more, it allows you to use this time to save some more and reduce your mortgage.
You have the flexibility to choose colour schemes and fittings of the property when you sign the contract. If you’re buying an apartment, you can also decide on a better positioned place with a better floor layout to maximise the value.
Off-the-plan contracts are usually much larger than normal contracts, which can be daunting for purchasers. There are usually unknown restrictions and conditions that can easily go unnoticed if not read carefully, especially because construction is to take place. Circumstances can change, forcing local governments to implement restrictions which may affect the development.
Most off-the-plan sale contracts contain special conditions allowing the vendors to cancel the contract in specific circumstances. In addition, the developer is usually able to cancel the contract if the plan of subdivision can not be registered within a specified period of time, which is usually between 18 months and 3 years from the day of sale.
3. The plan my change
It is common for the property to look different to what was originally advertised. For example, the developer may need to amend the plans due to council restrictions. Most contracts for off-the-plan purchases contain a special condition which prevents the purchaser from ending the contract because of such changes.
While the idea of an off-the-plan purchase seems amazing, please be careful before entering into such a contract, which I find places balance of power with the Vendor. It is important that you know the developer well enough to trust that the works will be completed how you want them. It’s all about making an informed decision.
My name is Terry Dehghani and I am a 3rd year solicitor, based in Melbourne at Davis Zucco Lawyers.
We are a general practice, working in various areas of the law. I like the fact that I have a broad range of experience, as it allows me to offer services to a greater portion of the community ...