Astute East Brisbane's Finance Insights

Drawing on his industry experience, Tony Duncan shares his thoughts on industry changes, home loan requirements and a number of important areas to consider when planning your first home purchase or your next property investment. 

  • Tony Duncan

An Off the Plan Build- Is it for you?

Updated: Nov 29, 2020

Are you considering purchasing a property but haven’t seen something yet that suits your needs? Or maybe you’re ready to get your foot onto the property ladder and looking to secure something with growth potential. If either of these options is you and you have some time on your side then maybe it’s worth considering an Off the Plan purchase.


If you’re new to the term, buying off the plan is where you purchase a property before it's built. Based on architectural designs and sometimes an inspection of a display home/apartment you agree to a finish date, pay a deposit and once it’s completed, which can be anywhere from a 2-3 year wait, it becomes time to hand over the outstanding amount, after which the brand new property becomes yours.


When purchasing a property, it’s important to note that a bank doesn’t actually value the property until it’s fully built. This can be a pro and a con, which we will get to shortly. Generally speaking, a developer will start to seek valuation inspections 2-4 weeks prior to ‘practical completion’.


If working with a mortgage broker, the broker will be aware of the approaching ‘practical completion’ date and will hear from a buyer/developer to begin the valuation process. Following the ‘practical completion’ having taken place, the builder will secure property titles and once titles are secure will then call-in settlement, usually within 14 days. During this time, the buyer can also complete their final inspection. This is a pertinent step because following this the buyer is required to provide the approval to their solicitor. That then begins the process of securing formal approval from the lender and the provision of funding.


At Astute East Brisbane, we’ve worked on a large number of Off The Plan purchases and with several Pro’s and Con’s to this way of homeownership or property investment, we thought we’d take you across some of the key considerations to help decide if it’s the right move for you;


The Pro’s


1. You could have the ability to negotiate better terms.


Property developers will often promote significant savings in buying off the plan with a proposal to buy at current property market rates. It can be to the buyer’s advantage to secure off the plan where there is more availability, thus room to negotiate. Oftentimes, the funding for the entire build can be linked to a certain number of properties being sold so developers will be motivated to have the sales made so that the build can begin. This understanding could be used to your advantage in both the purchase price and the ability to tailor features.


2. You could pay a Lower Deposit


The deposit for an off the plan purchase is often smaller than buying a house and while it depends on the builder, a deposit for an off the build plan ranges from 5-20% where a house deposit sits roughly at around 10-20% in most circumstances. When buying off the plan, banks are not likely to lend money for a deposit. This will need to come from your savings, a family member or a cash gift. Keep in mind that these last two will likely need to go with some form of savings to prove your ability to set money aside regularly.


3. You will have the ability to put your specifications in


Aside from the fact that you’re buying a home that is brand new, that no one else has lived in, you’ll have the ability to customise a number of the features to truly make the property unique and feel like your own. As an aside, your new property will come with a 6-star energy rating, which is now the requirement for all new builds in Australia which can certainly be a further saving on the back pocket over time.


4. You could benefit from government support


If you’re planning to lease the property out, you could stand the benefit from the tax depreciation that goes with a new purchase. If it’s your first home, you could qualify for the Home Builder Grant and benefit from $25 000 towards the build of your first home.


The Con’s


1. The need for quality assurance


There have been a number of situations of a buyer’s having issues with a finished product not being what was promised. Fortunately, there are often clauses within build contracts to cover quality assurance, meaning that anything that doesn’t align with expectations can be addressed after the build has been complete.


2. Your builder could go bankrupt


It’s really important to do your research to know that your builder is reputable, has a track record of delivering on their commitments and delivering a quality product. It’s not unreasonable to ask for references and is worth looking at some of their previous builds to have a level of comfort that your builder is reliable and trustworthy.


3. The bank valuation comes in too low


We’ve seen some bank valuations come in lower than the anticipated value and that can become a stressful situation for the buyer who is required to purchase a property that is worth less than it is valued on paper. The low valuation can be for a myriad of reasons such as a drop in the property market, an over-supply of properties in the area or a low-quality build. It’s worth also noting the possibility of increased lending restrictions due to changes in the banking industry. These are situations we want to avoid for our clients, so it certainly helps to have a mortgage broker on board early in the process to ensure all scenarios are considered and an alternate solution is explored.


4. The build may not be completed on time


Not having a home built on time can become costly and stressful if you’re living in rental accommodation with a lease that’s due to expire. To mitigate this, builder's are required to include a 'Sunset Clause' to provide assurances and some protection to the buyer. The ‘Sunset Clause’ is there so that if the builder doesn’t complete the build on time, then you can pull out of the contract and take back your deposit.


It's fair to say there’s quite a bit to consider if you decide to Buy Off The Plan. That's the case with any purchase of any property really and it's a reason why it makes sense to have a mortgage broker to assist. It may well be that you find an aesthetic or a layout you love, you're prepared to wait and the location is perfect for your needs.


If this is something you're considering and you’ve got any questions, it’s worth giving us a call. Operating across the Brisbane area, we’re well placed to be able to advise you on the steps and we’re happy to help you throughout the process.



https://www.qld.gov.au/housing/buying-owning-home/financial-help-concessions/homebuilder/apply


https://propertyupdate.com.au/buying-off-the-plan/


https://www.realestate.com.au/advice/buying-off-the-plan-is-it-a-good-idea/

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General Advice Warning: This communication contains general information only and in no way constitutes the provision of professional advice, nor should it be relied on as a substitute for financial, credit, accounting, legal or other professional advice. We have not taken into account your financial situation, investment objectives or particular needs. Before making an investment or financial decision, a person must seek appropriate independent professional advice and also consider whether this information is appropriate to their needs, objectives and circumstances. The author as well as their representatives, agents and employees give no guarantees and make no representations, express or implied, as to the accuracy, currency, completeness or suitability of the information contained in this document. Nor do they accept any liability whatsoever as a result of any information herein being incorrect, incomplete or unsuitable or as a result of a person in any way using or relying on the information herein.

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