Is buying off-the-plan a good investment?

Ever seen a great-looking image of a property and an even better-looking price? Chances are that it’s probably an off-the-plan sale.

Buying ‘off-the-plan’ basically means entering into a legally binding contract to purchase a property before it reaches the stage of final development and occupancy approval. So in other words, you are buying a promise – a promise that the seller will complete the development of a property in accordance with agreed terms.

The benefits

There’s no doubt that buying off-the-plan can have significant financial gains for a buyer. In Australia, buyers can enjoy tax depreciation benefits, government incentives and the ‘newness’ of a new property without paying the market premium.

First-home buyers around Australia can enjoy exemptions and concessions of stamp duty for properties purchased off-the-plan. They can also enjoy government grants. In NSW, for example, off-the-plan buyers may be eligible for a grant of $5,000 (provided that the value of the new home does not exceed $650,000 and the value of vacant land does not exceed $450,000).

The risks

There is an inherent risk with any ‘buy now, pay later’ deal – and that is that you may not get what you thought you paid for. Ambiguity of contract terms is a huge factor in disputes arising from off-the-plan agreements. That is why it is essential to have a comprehensive contract that sets out unequivocally and without confusion exactly what you are buying – from the features, fixtures and fittings to the insurance, voting rights (if it’s a strata property), timeframes and dispute-resolution processes.

Jane* bought an off-the-plan unit in Hurstville NSW but came to experience significant issues with basement/car park flooding that wasn’t anticipated under the original contract. Rising damp and other issues brought insurance coverage under the spotlight and numerous strata meetings were held to try to resolve them.

“My advice would be to read your contract carefully, get sound legal advice and also be aware of your rights and voting entitlements,” Jane says.

According to NSW Fair Trading, getting independent legal and financial advice is absolutely essential when it comes to buying off-the-plan. NSW Fair Trading advises that buyers can also benefit from asking the right questions. These may include, “Can I make changes to the kitchen and bathroom? Can I select appliances? Can I visit the site during construction? Can I onsell the property before its completion? What are my rights if construction is delayed?”

The issue with quality

A common complaint from buyers who have had an off-the-plan dispute has related to the quality of fittings and a gap between expectation and reality. Buyers should look at the fittings schedule attached to the contract and see what type of fittings will be included, including brand, make and model. They should also know what will happen if an item is out of stock or unavailable – will it be replaced with an item of equal value and quality – and will the buyer have a say?

Insurance implications

Buying an off-the-plan property where the developer is exempt from providing home warranty insurance is another risk. An example of this in NSW is non–multi-storey buildings, where a home warranty insurance certificate is not required to be attached to the contract until construction actually commences. In this case, buyers are warned to ensure that they have obtained proof of insurance before they settle the sale, as they cannot cancel the contract once it has been settled.

Knowing the market

You may think you’ve found a good deal, but keep in mind that market price fluctuation and further housing developments may ultimately impact the resell value of your property once it is completed.

The key is to do your research and know what’s planned in the area where you intend to buy. Are highrises being built? Are there subdivisions and land grants? At the end of the day, it all comes down to supply and demand.

Buying off-the-plan can be a wonderfully exciting and beneficial venture. But be sure to do your research and get professional advice, so you can avoid the risks at all costs.

*Name has been changed.