Buying off-the-plan

First home buyers, existing property owners and investors might find benefits in buying an apartment or townhouse off the plan from a developer, such as the potential to earn capital gains or save money on stamp duty.

But it’s important to weigh up the potential cons as well, such as the risk that the property could decrease in value by the time it’s fully built. The structural quality of new developments has also been called out by property experts recently after the evacuation of residents from Sydney’s Opal Tower in December 2018 and the Mascot Towers in June this year due to defects such as cracked walls.

What does buying property off the plan mean?

Buying a property ‘off-the-plan’ means buying a property that hasn’t been built yet. In Australia, the phrase is most commonly used when referring to apartments, units and townhouses, although off-the-plan houses, often referred to as ‘spec homes’, may also be available in some cases.

The decision to buy is made on the basis of what the developer says will be constructed. Potential buyers are usually supplied with a wide range of information about what the property will look like once it’s constructed, to help them visualise their purchase. This could include design blueprints or plans, artist renderings of interiors, architectural models of the exterior and even display suites and site tours.

Buyers are usually only required to pay a deposit to the developer or their real estate agent when signing a contract to purchase the property, usually between 5% to 20% of an estimation of what the property will be worth once it is built, although this can differ from project to project. The remainder of the price can sometimes be broken up into progress payments correlating to construction, or is required to be paid to the developer when the property is completed and its new owner is able to take possession.

When it comes to getting a loan to pay for the purchase, you may be required to have a deposit or a pre-determined portion of the total contract price already saved, or have suitable equity. However, this varies across lenders depending on many factors.