Buying a house, apartment or townhouse ‘off-the-plan’ means signing a contract to buy a property prior to it being built.

When buying a property off-the-plan, the purchase decision is based on building plans, elevations and renders, as well as the location itself.

In most cases, purchasers will put down an initial 5-10% deposit, with the balance of funds not due until construction is completed.

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Advantages of Buying Off-the-Plan

• You only need a small upfront deposit to take control of the property.
• There are often discounts on stamp duties, as an incentive to buy this type of property.
• As the property is new, you will have a property that is in great condition, and you will also be entitled to significant depreciation benefits if you’re an investor.

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Disadvantages of Buying Off-the Plan

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• Often, construction on an off-the-plan building can only start when the developer obtains construction finance, which is dependent on selling a certain number of properties. As a result, there is no guarantee that the project will ever get underway. A sunset clause can protect the buyer from a project that never starts.
• It’s difficult to value a property when you can’t physically see it. For example, views from a high-rise building.
• There’s a risk that the property market could soften, and the property is worth less than when you signed the contract.

Buying Land and House, and Land Packages

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In the eyes of lenders, land and house, and land packages can often fall into the same category as an off-the-plan purchase.

In recent years there many people have been buying land and seeing strong growth in a short period of time. This can be advantageous, as when the buildings are finally standing and valued, the properties have already seen a significant upside. This is one way that many people have been able to save paying Lenders Mortgage Insurance (LMI).

However, it is important to note that this is considered a valuation risk, as those same properties can come in short with their valuations if you buy at the wrong time. This means that you will need to contribute more funds if the value of that land has fallen between the purchase of the land and completion of the house.

However, most of the banks will accept the market value of the property if the valuation for off-the-plan/land sales is done after 12 months.

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