Off-the-plan resales: How to buy a brand new apartment without having to wait

If you like the idea of a brand new apartment, but you’re nervous about buying off the plan before construction has even started, there’s another option.

An increasing number of people are now choosing to wait until they can see the building taking shape and be in a better position to judge its quality by buying an off-the-plan apartment in a resale from its original purchaser before they settle.

“I get a lot of clients who prefer to buy like that when a building is coming near completion,” says Brett Griffith, director at Colliers International Melbourne residential.

“There are still a lot of people who can’t get their head around off-the-plan buying, and so some like to do it this way, especially later in the process when there’s more certainty around the delivery timeframe.”

Why do people resell off-the-plan apartments?

The apartment might originally have been bought by a speculator who’s hoping for a rising market so they can make some money on a minimal 10 per cent stake – the deposit – by reselling later for more than the price they agreed to buy at.

“They’re looking for the property to increase in value, and by more than the stamp duty they paid on the purchase,” says Tim McKibbin, chief executive of the Real Estate Institute of NSW.

“That second buyer might be in a better position because much of the construction has probably already taken place, although a developer still might be unwilling to let them in to inspect the property properly. But the opportunity is there for the second purchaser to see more of what they’re buying.”

A building may also take up to five years to complete, and people’s circumstances can change dramatically in the interim, forcing the original buyer to alter their plans completely. They might lose a job and be unable to afford to settle when the time comes.

“Or there might be a marriage split, or someone may have died in the family, or being sent overseas for work … there could be 101 reasons why they decide to sell before settlement,” says Mr Griffith. “We do these deals all the time for people, and we offer both the seller and the buyer our help.

“Usually the original buyer and resale buyer settle simultaneously, on the same day and time, so the deal is done at the same time.”

Resales are often advertised privately, through a regular real estate agent or often through the original marketing company who sold the first apartments off the plan.

Don’t overlook the essentials

Any buyer considering this kind of purchase should still do all the same checks that anyone buying directly off the plan should carry out: making sure it’s going to be in a good location, that it’s going to be a well-designed, planned and constructed building, and that the developer has a good reputation, with other quality projects to their name.

One disadvantage might be that the new buyer doesn’t have access to all the marketing materials the first ones received, but that may be outweighed, says Mr Griffith, by being able to see more of the almost-finished building.

Another danger is that the second buyer could end up too focused on the price they’re paying at the expense of rigorous checking. “There are always risks associated with buying off the plan,” says buyers’ agent Veronica Morgan, principal of Good Deeds Property Buyers.

“But the danger can be that buyers are potentially lured by the idea they might be getting a bargain, and they don’t notice they may be putting the bigger picture in jeopardy, by zeroing in on the price rather than examining the risks.”

Remember always to compare prices with those of comparable existing homes, urges Peter O’Malley, managing director of Harris Partners Real Estate. “If you want to sell later, you’ll have to compete with those too, so you should make sure they align.”

How much should you pay?

Off-the-plan buyers often pay a premium for having a brand new apartment and so the second buyer needs to try to negotiate the price down as much as they can, advises Mr McKibbin.

In addition, the new owner wouldn’t be able to sell to a foreign investor – many of whom are only allowed to buy new property off the plan, advises Mr O’Malley. “So, you lose a big part of your target market if you wanted to sell again,” he says.

“You should be paying less for the property than the vendor paid for it.”

Negotiating skills then really come into play, particularly if the first off-the-plan buyer is a desperate seller. “That always comes down to who’s holding the power in the negotiation, and who’s the most willing to walk away if the price isn’t right,” Mr O’Malley says.

Some vendors will tell a potential resale buyer that it’s not worth them selling if the new buyer doesn’t pay more, as they can walk away and forfeit their 10 per cent deposit. But a buyer shouldn’t take that on face value; often developers may have further penalties in the contract for those who don’t settle and can force them to make up the shortfall if the developer later sells for a lesser price.

Also, make sure the price you’re paying isn’t more than the price of similar remaining apartments that the developer might still be selling.

Examine the contract carefully

An expert should also be consulted about the tax implications. “The resale buyer may not get the same tax benefits of depreciation as the original off-the-plan buyer,” says Ms Morgan.

Always ask a suitably qualified specialised lawyer to go through the developer’s contract to make sure you, as the off-the-plan resale buyer, have the same rights as the original signatory to the contract, and no penalties apply.

You should, for example, have the same rights as the first buyer to ask the developer to rectify any defects in your apartment. “You should also understand the schedule of finishes, what’s included and what’s not,” says Mr McKibbin.