Pros and cons of buying off the plan

Pros and cons of buying off the plan

Open the real estate section of any newspaper and you are bound to come across glossy advertisements spruiking a shiny new development being built in a prime location in your capital city, usually close to the CBD and established amenities.

With capital cities across Australia suffering from a housing shortage – which subsequently pushes up property prices – the proliferation of new developments is seen as contributing to meeting the housing needs of our growing urban populations.

One such development in Melbourne, Live Brunswick East by Little Projects, is selling off-the plan one-bedroom and two-bedroom apartments from $340,000 just 6km north of the CBD. In the inner Sydney suburb of Newtown, another new development Industri is selling one-, two- and three-bedroom apartments as well as terraces off the plan.

Buying off the plan means signing a contract to buy a home before it has been built. While there are benefits to buying an apartment off the plan, there are also drawbacks.

What makes it an attractive option

Property lecturer and author Peter Koulizos says the primary attraction of off-the-plan apartments for buyers is their location and accompanying lifestyle. “These apartments are often in desirable locations,” he says. “For owner occupiers, their number one priority is not to make a profit – it’s to enjoy a certain lifestyle and that is the appeal of buying off the plan.”

If you enjoy the thought of living in a brand new home that has had no other inhabitants before you, then buying off the plan may be for you. If you get in early, you have your choice of apartment that will suit you most, rather than choosing from what’s left at completion.

There can also be stamp duty savings, depending on which state you live in. In Victoria, you are eligible for a 40 percent reduction on stamp duty if you buy a newly constructed home for $600,000 or less. In NSW, you do not pay any stamp duty for new homes under $550,000 and receive a discount on homes between $550,000 and $650,000.

What can go wrong

Buying off the plan means you are buying something you can’t see – you are relying on the developer’s display suite to portray an accurate depiction of what your future home or investment property will look like. The result may not always be what you expect. Koulizos says developers can make changes during construction if they are running out of money, choosing cheaper finishes to finish the job on budget.

“Changes can be made without your permission,” he says. “It will be written in the contract in very fine print.”

Furthermore, Koulizos has researched the capital growth of off-the-plan apartments around Australia and has found that many apartments end up selling for less than their original price, especially if sold within four or five years of construction.

“You buy something at today’s prices in 2013 to settle on something in, say, 2016. The theory is that property price will have gone up in three years,” he says.

And generally, that’s true. What can happen with off-the-plan properties, however, is that investors tend to snap up these properties with the intention of on-selling their contract at a profit before the development is completed. “So you have a large number of apartments going up for sale in the one development, which invariably brings down the price of all other apartments,” Koulizos adds.

Another issue with buying off the plan, according to Koulizos, is the potential of an oversupply of new developments, such as what happened in Melbourne’s Docklands, where an oversupply has meant property prices have not increased in value in 10 years. Pyrmont in Sydney is another example of an oversupplied area.

If you are considering buying off the plan, Koulizos recommends the following checklist:

  • Ensuring there is at least one car park on title.
  • Look for views that can’t be built out.
  • High-quality fittings and finishes.
  • Quiet location.
  • Read the contract carefully.

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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

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Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

Should I become a guarantor?

You should carefully weigh up the pros and cons before signing on as a guarantor – because while it can be very rewarding if everything goes according to plan, it can have serious consequences if the plan goes awry.

If the person you’re guaranteeing keeps up with their mortgage repayments, you’ll be able to take pleasure in helping them fulfil their dream of home ownership.

However if that person fails to meet their mortgage repayments, it might damage or destroy your relationship. Your finances might also be affected if the lender asks you to make the repayments or even seizes your home to settle the debt.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.