Australia’s capital cities have long been plagued by a shortage of properties, helping drive up prices – which is great if you’re selling, but not ideal if you are in the market for your first home and facing the prospect of a daunting-sized first mortgage.
One solution being encouraged by state governments is high-density living and new apartment developments. So as the Central Park precinct in inner Sydney nears completion, capital cities around Australia are likely to see more such developments – with more off-the-plan apartments going on sale.
Buying off the plan simply means buying an apartment before it is built, based on an architect’s design and floorplan. It can be a leap of faith – you are placing your trust in the architects and developers to deliver what they promise – but there are also many pros to buying a home this way.
For starters, you are buying a brand new property that no one has lived in before. And in many developments, you can choose your own finishes, floorplans and other details.
But for most off-the-plan buyers, the most appealing benefits are of a financial nature. For example, you are buying a home at today’s value when it won’t be completed for several years – conventional thinking is that it will be worth more once the development is completed, therefore earning you an easy profit before you even move in.
Next up, you pay a deposit to secure your home, but you don’t have to start paying the mortgage until the apartment is built, according to Fair Trading NSW. This buys you more time to organise your finances, compare home loans and choose a mortgage to suit your needs.
If you are buying an off-the-plan investment property, there may also a tax advantage. Check with your accountant as you may be eligible to claim depreciation on your tax for “capital works” (such as walls and windows) and “plant and equipment” (such as carpet and appliances).
On the flip side, the cons include the possibility of delays and the uncertainty of not knowing when you’ll be able to move in. Or the finished product may not resemble what was promised. Worse, there is the risk that you may pay too much if property market prices fall in the time it takes your apartment to be built.
If you are considering buying off the plan, here is a handy checklist to help you along:
- Visit other projects built by the developer to inspect the quality of the work.
- Research market conditions and property prices in the area.
- Check the contract to determine whether you can visit during construction, make changes to fittings and fixtures, whether you are entitled to resell before you complete the purchase and other considerations that may be important to you.
- Ask questions to determine whether there will be additional costs to the sale price.
- Ask what happens to your deposit if the developer runs into financial problems.
Inspect the site – are there other construction projects that may affect your view or the appeal of the area?
- Use a licensed valuer to value the property.