Buying a property off the plan means you are essentially buying a dream, a house - or more usually an apartment or townhouse - that you cannot walk through to see how the rooms flow, how high the ceilings are or what the views from the windows will be.
The marketers selling these properties will tell you it’s all upside for the buyer, that you are buying tomorrow’s real estate at today’s prices. They want you to assume that property prices never fall, but of course they do, sometimes spectacularly. The Gold Coast, for example, experienced a vast oversupply of apartments in the wake of the Global Financial Crisis, meaning many who bought off the plan ended up with properties worth up to 50 per cent less than they paid. That market is recovering, but it has taken several years.
For some investors and home buyers off-the-plan will work well and they will end up with attractive properties worth at least as much as they paid, sometimes considerably more. Pluses include stamp duty concessions in some states, more choice of apartment type, maybe the ability to customise floor plans and layout, and longer to save for the purchase.
Downsides can include the apartment being very different from that promised by the vendor or envisaged by the purchaser, problems securing the amount of loan you need if the value falls during construction, lengthy delays in construction and the collapse of the builder.
If you are thinking about an off-the-plan purchase, take steps to ensure you are not one of the losers from the experience. The key is to nail down every detail before you sign the contract:
1. Know where you are buying. Examine price and rental growth over the past 10 years. If it has been strong, look for adjoining areas where the growth has been weaker, as these have more potential. Assess the amenities, such as shops, schools, parks, accessibility to major work centres and planned infrastructure. Pay close attention to how many new developments are planned (you will find this information at your local council) as a large number of new apartments coming onto the market might result in oversupply and a fall in values.
2. Find out all you can about the developer/builder/architect of the project. Inspect examples of their work, check that the builder is registered and the developer is a substantial company, because if the developer goes broke your deposit could be tied up for years.
3. Don’t pay over the odds. New buildings can command a premium, but make sure your price is in line with recently competed apartments in the same area. Be wary of projects that are heavily marketed, as those costs will be built into the price. And be extra wary of projects that offer rental guarantees as this can signal that the developer expects an oversupply. Again the costs are usually built into the price.
4. The contract is king when you buy sight unseen. In most cases it’s worthwhile to hire an expert to check all the details in the contract, such as finishes, ceiling heights, orientation and views, as well as a lawyer to check the financial details, such as what happens in the case of delays. If there is a display unit, consider organising an architect to inspect it so you have a more accurate assessment of the product you plan to buy, including room measurements, inclusions, fixtures and fittings and brands and models of appliances and fittings. Make sure it’s all detailed in the contract and get your architect to check it out on completion before you pay.
5. If the development is strata title (as most are) check whether binding management contracts are in place. In a strata scheme the developer may have put these in place. Get an expert to inspect these as there have been instances of developers granting overgenerous contracts to associated companies.
6. Plan your finances in case the valuation at completion is less than the contract price. If this happens your lender is likely to lend you less than you want, so it pays to have a contingency plan.
A version of this article first appeared in the August 2014 issue of The Australian Women's Weekly.