Buying off the plan is an investment strategy where you purchase an apartment prior to it being completed. So why would you purchase property off-the-plan?
What does buying off-the-plan really mean?
Buying off-the-plan essentially means that you are entering into a contract to purchase a property prior to, or during the construction phase of the development. Hence the phrase buying off-the-plan, as there is no finished product for you to inspect.
There are two key differences between buying an existing property and buying off the plan:
- Contract Details:
A contract for purchasing off-the-plan will be much more detailed given that construction may not have commenced, or may have only just begun. In this case, the contract will include everything from proposed body corporate assets and expenses to an outline and schedule of finishes for each property.
- Settlement Time-frame:
While settlement for an existing property generally occurs 30 days from the contract date, purchasing off-the-plan allows more time (approximately 12 to 18 months or more) between contract date and settlement. Investors often use this to their advantage as it provides them with more time to ensure they are in a strong financial position.
When developers first offer their new products to the market they usually start with lower prices to encourage a faster sales rate. When construction commences, and the developer has met their construction finance requirements, prices usually rise. Therefore, for investors who commit early to the project there is often a good price incentive.
As with all investment property purchases there are some significant tax benefits. These benefits are greater when property is newer because there are more tax depreciations available. Those benefits are greatest when the property is brand-new so buying off-the-plan maximises your available tax deductions.
Secure property at today’s price
When buying off-the-plan, an investor can secure property at today’s price yet often not have to settle for up to 18 months, or in some cases even longer. This means that while you’ll pay a 10% deposit upon signing a contract, you don’t have to pay the balance of the money until the property is complete. In the meantime, especially in a rising market, you can enjoy the benefit of any capital growth that occurs on the property. Of course if prices were to fall, which has rarely happened in most areas of Australia, and certainly not for long periods of time, you have to wear that risk.
If you’re an owner occupier purchasing off-the-plan, you instantly have the added advantage of ‘putting things in order’ before you move in. Co-ordinating the sale of an existing property can be stressful, but knowing that you have some time before your new property is ready to occupy provides you with valuable time to plan for your move and can reduce stress considerably.
If you buy property during the planning stages, or early on in construction, the extra time before settlement can be used to save money. While the deposit needs to be paid when the contract is signed, the balance of the purchase price does not have to be paid until construction is complete. This means you don’t actually need your bank finance until settlement. Since construction can take 18 months or more, it’s easier to build a substantial nest-egg over time that can be used to help reduce your mortgage.
One of the greatest benefits of buying off-the-plan is that you get to choose your property from everything that is available in the development. Normally you don’t have that opportunity. If you are quick off-the-mark the selection is even greater.
A wider array of choice means a greater opportunity to make sure you purchase an apartment with a superior position, aspect and floor layout. It’s quite common for example, for penthouses, corner units, those with the best views and ground-floor apartments with private gardens to be sold first. This in turn, can offer better potential for strong capital growth and maximise rental yields.
For more information contact LV Prestige today.