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As a first home buyer, you may be looking for alternative ways to enter the property market and buying off the plan is one option.

As a first home buyer, you may be looking for alternative ways to enter the property market and buying off the plan is one option.

Buying off the plan is when you sign a contract to purchase property that hasn’t been built yet. You are able to see the drawings and plan for the design of the building, but there often no building that you are able to physically go and see. There are several benefits as well as possible dangers involved with buying off the plan, so before you sign the dotted line, it is important to consider all the factors.

Benefits of Buying off the Plan

Some people like to purchase off the plan as the property could increase in value by the time construction is completed. However, you shouldn’t assume your property will increase in value over time, especially if you haven’t done your market research. 

You may be able to save money on stamp duty costs as some State governments offer reductions on stamp duty for properties bought off the plan.

Buying off the plan can give first home buyers extra time to plan and save money for a larger deposit before settlement.

Dangers of Buying off the Plan

Even though an off the plan property could increase in value, it could also decrease in value.  So, if you were planning to sell your property or rent it out, you may not get as high of a return as you would have been hoping for.

When it comes to applying for a home loan, depending on which lender you go with, you may be able to obtain a pre-approval at the time you sign the contract. However, when settlement comes around you are only given a small window of time to settle. At this time your lender may want to reassess your application and if your financial position has deteriorated or if you are between jobs you could be at risk of being declined.

When it is completed, the lender will also be interested in valuing the property in the current market and, depending on whether it has risen or fallen compared to the purchase price, you may be in the position to have to come up with more funds in order to settle.

Another risk with buying off the plan is the developer going bankrupt and the project is abandoned. This is why it is so important to research the developer’s experience and qualifications before signing the contract and also check what guarantees are in place. Always seek legal advice so that you know where you stand if this were to happen.

Before signing the contract

There are plenty of things you can do before signing the dotted line to ensure buying off the plan is the best option for you.

Organise your finances

Although you only need to provide a deposit when you sign the contract to secure the property, as you are entering into a binding agreement you need to make sure that your finances are in order. As a minimum you should get a formal pre approval from a lender. Shop around as some lenders will even allow you to get your loan fully approved upfront using an on-completion valuation and allow for an extended settlement. This can take away the risk of low valuations at the time of settlement. So, before you sign the contract, speak with your lender about your options and get your finances locked in as much as possible. This way, you can confidently enter into the agreement knowing you are pre-approved or even fully approved.

Do extensive research

Before purchasing an off the plan property, you need to have a good understanding of the current and future property market. What are the current vacancy rates, rents, employment statistics and demographics for the area? Also, make sure you visit the location of the property and check for any other construction projects nearby. Your property’s plans may show that it will have great beachside views; however, if another apartment building goes up near it, your views could be obstructed, affecting the property’s value. How many similar developments are there in the area? There could be an oversupply of similar properties if they are all going to be completed around the same time.

As well as researching the property market, you should also research the development team. What are their qualifications and experience? Have they successfully completed projects in the past or have they had numerous problems with deadlines and building quality? Searching social media sites can give insights into their previous dealings.

Speak with a solicitor

A solicitor will be able to go over the contract with you to ensure you understand all the terms and conditions. They can also check to see how you are protected if the project does not get finished.

No matter what type of property you are considering to buy, as this is your first property, you will need to do extensive research to ensure you can afford the financial commitment.