Pros and Cons of Buying Off The Plan
Have you ever seen an image of a great looking property paired with an even greater price? Chances are the property is available for buying “off the plan”.
Essentially buying off the plan means you are buying a promise, you are entering a legally binding contract to purchase a property that has not yet reached the final stage of development, or, in some cases, has not yet begun development. Obviously, there are a lot of pros and cons to buying off the plan, and like any investment, it is imperative that you understand all there is to know about buying off the plan.
The pros of buying off the plan:
- Save on stamp duty
For some buyers looking to purchase an off the plan property, stamp duty benefits are available. This is a huge pro for buying off the plan as for many buyers stamp duty is a huge financial burden. For a first time, home buyer stamp duty exemptions/reductions can relieve this financial burden as in some states of Australia if you buy off the plan you can save over $18,700 on a $500,000 property.
- The freedom of time
When buying off the plan settlement can often be a year or two away, which for some is a huge positive as it gives buyers time to save for larger deposits. Additionally, you have the potential to make equity growth if the property market grows in value.
- Fixed price
When buying off the plan you agree to purchase a property for a fixed price, this means that your property can potentially grow in value if the property market grows in value. This happens at 0 cost to you. It is not uncommon for buyers to pay x and have their property increase in value by $40,000+
- Tax advantages
Buying off the plan obviously, means you are buying a new property. With any new property buyers are eligible to claim Depreciation which is a major tax incentive and is common for investors. Claiming depreciation also helps to reduce the major ongoing costs of holding the property and affords you the opportunity to grow your portfolio.
The cons of buying off the plan:
- The final product is unknown
Obviously, when it comes to buying off the plan the biggest risk is that you do not know for certain what the end product will look like. You are essentially spending hundreds of thousands on an idea and for some buyers, this can be understandably problematic. Additionally, the smaller details such as fittings, fixtures and finishings can appear different in the final result comparatively to how the buyer imagined or was shown in the display unit.
- Problems with financing
Because the settlement date of off the plan properties can vary your expected financing may not still be available in the future if the construction is not yet completed. Some banks will not offer unconditional bank approval unless there has been an exchange of contracts between the buyer and seller.
- Defects in can be extensive
In these types of purchases defects can often be extensive and sometimes these defects can be hidden in the clauses of the contracts. When considering an off the plan purchase ensure you fully understand the contract and make sure you’re protecting your rights and best interests.
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