Buying Off-The-Plan: The highs and lows of Sydney's property market
An off-the-plan purchase occurs when strata units or retirement village homes are advertised for sale before construction begins on the building. Often, the design of the building and sketches or 3D renderings of its final appearance may be included in marketing material before the building is completed, but the person making the off-the-plan purchase does not know exactly what they are buying into until after the purchase has been made.
Off-the-plan purchases are popular with buyers looking to purchase a property for a reduced price, a rarity in the highly competitive Sydney property market. Sydney is quickly becoming a city of apartment dwellers, with numerous developments either underway or proposed for the next few years coming, which means the off-the-plan purchases are coming back in a big way. It’s an exciting prospect, but there are potential pitfalls for buyers who are not wise in their choices.
Because we love a list here at CM Lawyers, we’ve come up with lists of the pros and cons of buying an off-the-plan property in Sydney.
Check out our Basic Guide to Off the Plan Property
Benefits of buying off-the-plan:
- Save on stamp duty: The government offers home buyers in Sydney and the rest of NSW bonuses and reductions in stamp duty for buying off-the-plan if you are a first home buyer.
- Pay now, earn later: When buying off-the-plan, you’ll pay for the current market price for a property, even though the project will not be completed until much later. Plan your purchase wisely and you could end up with a nifty investment.
- Increased property values: If the market experiences growth after you make an off-the-plan purchase, you’ll find that the property may increase in value by the time you settle.
- Advantages with the tax man: If you are purchasing the property for investment purposes, you may be able to claim depreciation on your tax for items such as fixtures and fittings. Consult with your accountant to find out whether you are eligible for claiming depreciation before you make any purchases.
- Extra time to pay: Though you will still need to make an initial deposit to secure the property (usually around 10 per cent), you won’t need to make the entire payment until the property has been built. As this can take up to a couple of years, it gives you time to get your finances in order and, if required, sell your current home so that you do not require bridging finances.
- Builder’s guarantee: According to the Department of Fair Trading, cover for loss arising from defective work is covered for a period of six years from the date of the completion of the work or the end of the work contract (whichever is later), and two years for loss arising otherwise than from a structural defect.
Potential risks of buying off-the-plan:
- Not like the pictures: As off-the-plan property buyers are usually not allowed to see the property until construction has been completed, there is a risk that what you imagined from the plans will not be what you end up receiving. The quality of work may be lower than what you expected.
- Decreased property values: What goes up must come down. When buying a property off-the-plan, you may end up actually paying too much if the property market falls between the exchange of contracts and the building’s completion date. You may find it difficult to secure finance for the full amount in time if this happens.
- Rising interest: The state of the economy is in constant flux, meaning that RBA interest rates could increase before you settle on the property. This could end up being problematic if you want to fix the term of the loan at the bank’s current interest rate.
- Bankruptcy: Wary buyers fear that the building developer could go into liquidation before the project has been completed. If this happens, will you be protected? What guarantees do you have? How will you get your money back? These are the types of questions you need to ask before agreeing to an off-the-plan purchase.
How do I protect myself when making an off-the-plan purchase?
Though Sydney’s property market is quite strong at the moment, making an off-the-plan purchase is still a bit of a gamble so it pays to be prepared in the case of a development failure. Have a solicitor or conveyancer go over the terms of the agreement to ensure your protection should this occur.
When meeting with your solicitor or conveyancer, you should ask them questions regarding the contract such as:
- Can I visit the site at any point during construction?
- Is my deposit secure if the building doesn’t proceed or is halted?
- What are my rights if construction is delayed?
- Will I be able to on-sell before construction is completed?
- Will I be penalised for withdrawing from the contract?
- Do I have a say in the unit’s fit out, such as selecting appliances or floor and wall tiles?
- Can I make changes to the finishes in the kitchen and bathroom?
What else can I do to give me a better chance of making a wise off-the-plan purchase?
Before you sign the dotted line for a Sydney property, you need to be as prepared as humanly possible. Here are some things you can do to ensure a smoother purchase process:
- Talk to a conveyancer or solicitor: Seeking legal help will be the number one best thing you can do when deciding to purchase an off-the-plan property. They will advise you of any weaknesses in the contract and do their best to ensure that you are protected in case the development fails.
- Do your developer research: You should pick a reputable developer with a proven track record and experience. This will make it much less likely that mistakes will be made during the construction period and, if problems do occur, they will be rectified quickly.
- Check the display property: This is as close as you’ll come to seeing the finished product if you’re not permitted to go to the site during construction. Carefully inspect the fixtures, fittings and finishes to make sure that they fit in line with what you had in mind. You may want to check whether or not you can make modifications in the event that the finished product is not up to standard.
- Make a back-up plan: Try as they might, there are few developments that are completed right on schedule. Ensure that you are not overly inconvenienced in the event of this occurring by coming up with a contingency plan.
If you require assistance with purchasing an off-the-plan property in Sydney, call on the conveyancers and solicitors at CM Lawyers today to ensure that you get the most out of the deal.