Buying a property off-plan: what it is and what you need to know
If you’re in the market for a new home, you might be familiar with the term off plan. This means buying a property that doesn’t exist — at least, not yet. However, once it does, you’ll be the first person to call it home.
What does ‘off plan’ mean, and is it something you should consider when looking for your dream property?
In this article, we’ll explore the pros and cons of buying an off-the-plan property so you can decide whether it’s right for you. We’ll also share tips on what to do (and what to look out for) to ensure expectations meet reality when it’s time for you to move in.
‘Off plan’ defined
In simple terms, buying off the plan means purchasing a property that hasn’t been built yet or is in the process of being built. You’re essentially buying a blueprint or plan of a property that will be constructed at a later date.
Typically, this approach relies on architectural drawings, renderings and a disclosure statement that outlines the property’s key features. Some common properties bought off plan include apartments, townhouses, or house and land packages in new developments.
While it may seem daunting to invest in something that doesn’t exist yet, there are advantages to buying an off-plan property.
Off-plan vs. established properties: What are the differences?
The main difference between buying a property off the plan as opposed to an established home is that one has already been built, while the other is yet to be built.
With an existing property, you have the ability to walk through it and see exactly what you’re getting, whereas when buying off plan, you’re essentially purchasing a concept.
You can’t walk through the home and inspect it; you can, however, review the blueprint or plan for the home to make your decision.
Selecting a property off the plan might suit buyers who want to purchase a brand-new home. It also might be an appealing option if you’re looking to save money on stamp duty or enter the market at a lower price.
If you’re looking for certainty or the ability to move into your new home quickly, an established property might be a better fit for you. Property investors may also prefer established homes so they know exactly what they’re signing up for before committing.
How buying off plan property works
The purchasing process differs depending on the type of property you’re going for. Here are the key steps involved in securing a property off the plan:
- View plans of the property: You’ll choose your property based on floor plans, renders, and a disclosure statement provided by the property developer.
- Pay a deposit: Once you’ve selected the home you want, you’ll sign your contract and (typically) pay a deposit of 10%.
- Balance on settlement: Once your new home is ready, you’ll need to pay the balance. You can do this through a home loan.
It’s important to note that settlement can take months or even years, depending on the construction progress.
For this reason, ‘sunset clauses’ that put a limit on the time to complete construction are often included in contracts. They can often give buyers the option to end the contract if the developer doesn’t meet the stipulated deadline. That said, it’s important to acknowledge that construction delays can still occur due to unforeseen circumstances beyond your builder’s control, such as extreme weather events or a global shortage of materials.
Throughout this process, buyers are encouraged to do their due diligence. You might also find it beneficial to work with a qualified property lawyer.
What are the main advantages of buying off plan?
For both owner-occupiers and property investors, buying a home-to-be is often appealing, as it makes entry into the local real estate market more accessible.
We have a guide that takes a deeper dive into the advantages of buying off the plan, but here are a few benefits:
Savings and financial benefits
Buying off plan can reduce the upfront financial pressure of purchasing a property. It might also offer more value in the long run.
Potential for capital growth
If the market rises while your house is under construction, your property might increase in value by the time construction is complete. This means you’ll enjoy an instant boost in its equity when you settle.
Time to save
The time between signing your contract and settling gives you more time to save money. This can decrease the financial burden of stamp duty, moving costs or home loan repayments.
Lower upfront costs
The deposit required for buying off plan is generally around 10%. For many people, this might be easier to save up for than the full 20% deposit required (typically) for an established home.
Savings on stamp duty
In some cases, stamp duty is calculated only on the land value or a partially completed dwelling. This can result in welcome savings, particularly for first-home buyers or homeowners in New South Wales.
Fixed price protection
When you purchase a property off the plan, you lock in the price from the moment you sign your contract. So, even if the market is booming by the time your home is ready for you to move in, you won’t have to pay a higher price than you initially agreed on.
Access to government grants
When purchasing off-the-plan properties, eligible buyers might qualify for government incentives. This includes the First Home Owner Grant on new builds.
Customisation
Additionally, buying off the plan could allow you to customise your home more easily. You can often choose from a range of finishes, colour palettes and fittings to create a space that reflects your style.
Usually, this level of personalisation isn’t possible with pre-existing properties, where you might have to settle for features that don’t quite match your vision.
Builder guarantee
Different states have different legislations, but generally speaking, a builder offers certain guarantees and protections on a new build that aren’t typically offered with pre-existing homes.
In New South Wales, vendors selling off the plan are obliged to provide buyers with a disclosure statement outlining important information such as the latest possible settlement dates and other conditional events, as well as draft documents regarding by-laws, proposed finishes and so on.
Plus, any new build should meet all current legislation and building codes for the region, which should give buyers peace of mind.
What to look out for when buying an off-plan property
Buying an off-plan property can help you secure a brand-new home at today’s price. However, there are a few things you should consider before committing to a purchase. They include:
The developer
One of the most important things to consider when buying off the plan is your property developer’s track record.
Ensure they have a solid reputation and history of delivering high-quality properties on time and within budget.
You can do this by checking their credentials with industry organisations. It’s also a good idea to read online reviews from previous buyers and talk to a trusted local real estate agent.
Location
It’s important to think about where the property is located.
An off-plan property might seem like a great deal, but if it’s located in an undesirable or poorly connected area, you might want to reconsider it.
Research the neighbourhood you’re thinking of purchasing in to make sure the property you choose will make a good long-term investment. Consider evaluating nearby schools and public transport links, as well as local amenities like hospitals, medical services, shops, and sports clubs.
Time to completion
While buying off the plan can save you a fair amount of money, your move-in date might be delayed if construction takes longer than expected. This could impact your living arrangements or ability to meet financial obligations. That’s why it’s a good idea to factor in some buffer time, allowing for potential delays.
An experienced property lawyer should be able to provide you with advice about this.
Peace of mind when buying off the plan
If you’re buying an off-plan property in New South Wales, there are laws in place to promote transparency and reduce risk throughout your buying journey.
Increased disclosure
Developers must provide you with a detailed disclosure statement that includes things like floor plans, proposed finishes and estimated completion dates.
Notification of changes and statutory remedies
If any material changes occur after contracts have been signed, buyers must be notified in writing.
They may also have the right to rescind or claim compensation if significant alterations have been made that might impact their original purchasing decision.
Cooling-off period
Buyers are generally entitled to a cooling-off period of five business days after exchanging contracts.
This gives them time to reconsider their decision to purchase off plan. It also gives them an opportunity to seek professional advice.
Deposits
Your cash deposit is held in a trust account, and your property developer can’t access it until the settlement of your property. This protects you as the buyer and makes it easier for you to receive your money back if the build doesn’t proceed for any reason.
Sunset clauses
Sunset clauses set a maximum timeframe for the completion of the build. Property developers can’t use them to cancel contracts without buyer consent or court approval.
You can read more about your rights when buying off the plan on the New South Wales Fair Trading website.
How about financing?
Financing a property off the plan can be a slightly different proposition from buying an established home.
Most lenders will offer conditional home loan pre-approval based on the contract price. However, they often require a formal valuation closer to the completion date. Therefore, because of the longer timeframe, it’s important to factor in potential changes to interest rates or lending policies.
In terms of transfer duty (also known as stamp duty), buyers in New South Wales might be eligible for a deferral. If your off-plan property is your main residence, you could have up to 12 months to pay after signing the contract.
You can learn more on the Revenue NSW website.
Wrapping up
Buying off-the-plan can be a great way to get into the property market. It’s cost-effective and gives you the freedom to customise your own space. But before you do it, it’s important to do your research to ensure that the property you’re purchasing is a good long-term investment.
A smart starting point is to work with a reputable property developer and real estate agent. It’s also important to research your property’s location and surrounding amenities.
Take these precautions and secure appropriate financing. Then all that’s left to do is find your dream home.
FAQs
Can I sell a property I bought off the plan before it's finished?
Yes, depending on the terms of your off the plan contract. Some contracts may restrict resales or require approval from your property developer.
What happens if my property developer goes bankrupt?
In most cases, your cash deposit is protected by a trust account or bank guarantee. However, it’s advisable to review your contract with a property lawyer before proceeding.
Are house and land packages considered off plan?
Yes. These fall under off the plan properties, especially in new land estates or land package developments.
Do I need to do due diligence when buying off plan?
Absolutely. It’s important to review your developer’s track record before committing to any purchases. In particular, check for building defects in past projects and carefully read all documents they provide you with. This includes the disclosure statement and sunset clause.
Can I customise the design of my off the plan home?
Many off the plan builds allow for some level of personalisation. However, this depends on the stage of the construction process.
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