Buying property off-plan can be exciting: the promise of a brand new home to which you can add your own personal touches, choosing your preferred designs and specifications. In a rising property market, it can also prove a lucrative investment – but not always. If you’re considering it, be prepared and ask yourself these five questions first.
1. Do you know the risks?
When things go well, buyers purchase in a rising property market at today’s prices, and in a year or two’s time (when construction is complete) the property is worth more than they paid. However, there are inherent risks in buying real estate that’s yet to be built. Consider the following scenarios:
The property market falls
In the years it takes to build the property, the economic landscape can change considerably. Tighter lending policies, higher interest rates or an oversupply in the area could lead to falling prices. If this happens, the property won’t be worth what you agreed to pay for it on completion. A lender won’t fund this gap, so you might well have to make up the shortfall yourself.
Your personal situation changes
Anything can happen in the years between putting down a deposit and build completion. Regardless of your personal or financial circumstances, you’ll probably still be contractually obliged to settle.
The developer fails to deliver
Despite the slick marketing, the developer may disappoint: the property may not be finished to the standard you expect, construction may be delayed or, in a worst-case scenario, the build may be left unfinished (if the developer goes bankrupt, for example).
2. Does your contract limit the risks?
It’s very important to secure legal advice from a solicitor experienced in off-the-plan property purchases before you sign anything.
Your contract should cover everything from price and completion date to legal rights and conditions, such as:
- What happens if the property is worth less at completion than the agreed price
- What happens to your deposit if the building does not go ahead
- What happens if construction or completion is delayed
- Whether you can specify the quality of brands for fixtures and fittings
3. Who is the builder or developer?
Before you commit to buy, it’s important to discover whether or not the developer is reputable, so undertake some thorough research to help you establish their track record. Questions to ask include:
- How long have they been in the industry?
- How many properties have they completed?
- Did they deliver on time?
- How satisfied are their previous clients?
- What is the quality of their workmanship?
It’s a good idea to physically visit some properties and any display homes and get a reference from previous clients. Visit the website and use online forums to find company reviews and additional information.
It’s also advisable to find out what you can about the company’s financial position. Will they disclose any information about their solvency? Where is funding coming from? How many pre-sales have they made for this development?
Additionally, consider whether or not you want to work with them. How much input can you have during construction? Are you able to make site visits, amend finishes and select appliances? What happens if the builder makes changes without telling you? Make sure you can have the working relationship you want.
4. Are you eligible for government grants and concessions?
While one of the best things about buying off-plan may be owning a shiny new property, there may also be stamp duty concessions or government grants available to you. There are first homeowner grants for new property that can be as much as $20,000, depending on your state or territory. Check your eligibility.
5. Are you financially ready to buy off the plan?
You’ll usually need a deposit to secure the property with the balance payable on settlement. Because of the longer waiting period between exchange of contracts and settlement, those requiring loan pre-approval should check when approval can be obtained.
While there are some risks when buying off the plan, being prepared, asking the right questions and talking to your Geelong Mortgage Advisers about finances can help you enjoy the benefits of your very own brand new home.