Is it a good idea? The pros and cons of buying off the plan

If you are thinking about downsizing and trading in your large family home for something a bit smaller, no doubt you have started to think about where you see yourself living next. Many older Australians choose to purchase a smaller unit or townhouse in retirement.

Depending on your location within Australia, buying an apartment can be extremely affordable, but have you ever considered buying one off the plan? You may have heard people talking about “buying off the plan” before, but if you aren’t sure exactly what it means, then we’re here to help.

What is buying off the plan?

When you buy off the plan it means you are signing a contract to purchase an apartment or house that has not yet been built. This means that unlike traditional property sales, there is no physical building for you to inspect, so your decision instead has to be based on drawings and details provided by the developer. But is this a good, or bad, idea?

Pros of buying off the plan

As with most things in life, there are pros and cons to buying off the plan. Perhaps the biggest plus side is that you will usually pay less for the property if you buy it in this way. The reason being that you will have agreed upon a purchase price with the developer before the building has been completed, meaning you could pay far less for the unit than it will actually be worth upon completion due to rising property prices.

Buying off the plan will also often yield a lower deposit amount, with some developers offering rates as low as five or 10 per cent. This can make a huge difference to you as a buyer, as it gives you more time to get your finances in order before paying the balance.

Another financial upside is that the amount of stamp duty you are required to pay will be lower for properties bought off the plan. This is due to the fact that stamp duty will be paid for the land value, rather than the value of the finished property.

And finally, because the property is brand new and has never been lived in, chances are it will be in better condition than the majority of older homes on the market. This in turn will reduce the amount of cash you’re likely to need to shell out to have the place looking its best. New properties are also usually more energy-efficient than older houses and units too, which could also slash the cost of your utility bills. While you may also have the chance to personalise your home and have a say in the style and colour of the decor fitted, saving you time and money further down the track.

Cons of buying off the plan

With every upside comes a downside, and there are some factors you should be aware of before you agree to buy a property off the plan. While we cited the pre-agreed purchase price as a benefit above, it is also true that this could turn out to be a potential problem. For example, if house prices across Australia plummet, then you could end up having paid a lot more than the property is worth upon completion.

Others risks to be aware of involve the building developer, so it really pays to do some research about the company before agreeing to purchase one of their off-plan properties. This can include simply Googling them, reading reviews, checking out their website and looking for any bad news reports about previous business.

One such issue you could encounter is that the developer may fail to complete the build. If this does happen then you should be entitled to your deposit back, but it is definitely worth checking whether your contract has a sunset clause, which lays out a specific date by which the build must be completed, or else the contract be deemed null and void.

However, the situation may be different if the developer goes bankrupt before the apartments have been completed. In this case, whether or not you receive your refunded deposit depends entirely upon the terms of your contract.