Buying units off-the-plan

Off-the-plan benefits

Prices of off-the-plan properties are usually lower than established properties in the same area. These low prices are used to encourage sales early on in the development. Once the building is complete prices can increase so it is a smart idea to get in early. Since buyers are only required to pay a deposit they can then continue to save money for the property while the construction takes place. This added benefit means when it comes time to pay at the end, the buyer can be more financially fit.

The financial gains of off-the-plan properties are a major benefit for buyers. The tax advantages and lower stamp duty costs are reasons why buying off-the-plan can be a good financial decision compared with other properties on the market. You can claim depreciation on your property for tax benefits and low stamp duty can save you thousands of dollars. Of course, as with any investment there are risks involved.

Property cycle benefits versus risk

A key part of this risk is the difficulty for a buyer to pinpoint where the property cycle will be when their unit complex is finally built. Get it right and you reap the cost, capital gain and tax benefits that the off-the-plan sector prides itself on; get it wrong and you could wait years for any capital growth, and, as an investor, struggle to find a tenant and/or face lower rents than anticipated.

Over supply

Property researchers and commentators have been warning for months of a looming oversupply of inner-city units in Melbourne, which is already said to be well in oversupply; the situation is much the same in Sydney and Brisbane and potentially other major centres.

They also warn of a profound demographic change in the historical drivers of demand for units in these cities. This could signal elevated risk in the short term for off-the-plan buyers. This change, even more so than the supply equation, should give anyone currently considering an inner city off-the-plan purchase as a home or investment a cyclical reason to pause.

Design-change danger

A further risk is that, in the rush to supply complexes to satisfy burgeoning demand, off-the-plan buyers could end up with a unit somewhat less than imagined when they paid their deposit. There is in fact a provision in law for developers to apply for approval to make design changes to a proposed unit complex during its construction.

This potentially includes an increase to the number of units in the complex, which often requires some changes in individual unit floor plans. Buyers should therefore be prepared to know intimately and to defend the clauses in the contract they signed, which can be a far more lengthy and complex document than is the contract for buying an established property.

After all, as Paula McLean, sales and marketing director of off-the-plan specialist group Which Property puts it: a floor plan design can be “the difference between a unit that has tenants queuing to move in and one that fails to attract tenants and keep them interested. Good floor plans also attract owner-occupiers, so investors should carefully
consider their resale market whilst buying off-the-plan.”

While there are risks for off-the-plan properties, the same can be said for any investment in the property market. The potential for financial gain that these apartments and houses offer can mean huge savings for buyers. When looking to buy a property, consider buying off-the-plan and you could reap the benefits.