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What is buying ‘Off the Plan’?

Buying off the planBuying ‘off the plan’ means you are buying a property (and signing the contract) before the property is built.  You have no actual property to inspect at the time you exchange on the contract and you commit to the purchase based upon the plans, inclusions and of course the price of the property.

Here’s some of the reasons why many of our clients have chosen to purchase properties ‘off the plan’ in the past.

Opportunity for capital growth – buy at today’s prices

With property prices steadily rising over the years, there was a good chance that if you bought off ‘off-the-plan,’ the property will increase in value over the time it’s built.

For example, you buy an apartment ‘off the plan’ today at a price of $350,000.  If property prices increase over the next two years as the property is built, upon settlement your property could be worth $365,000.  But you only had to pay $350,000 for it.

The capital growth has occurred before you have paid anything more than the deposit.

It’s important to realize that the ‘opportunity for growth’ does not always translate to ‘actual growth.’   As with anything, the price (or value) of your apartment at the time of settlement will be affected by the market– i.e. supply vs demand.

If 200 apartments within a new development all settle at the same time, there’s likely to be portion of these that are on sold on settlement.  Perhaps the developer didn’t sell them all initially, some investors bought them specifically to ‘on sell’, or some owner-occupier buyers purchased a property in the meantime because construction took too long.

Even if property prices have increased over the construction period, if there are not enough buyers willing to pay $360,000 for the new apartments, there’s a risk that the perceived capital growth is not realized.  When a limited number of buyers have many apartments to choose from – all of which are in the same development and essentially the same – it’s easy for the price to be driven down.

Depreciation Benefits if your ‘off the plan’ purchase is an investment property 

Owning an investment property provides some great tax advantages and depreciation is one of them.  Some investors like to purchase brand new properties because the depreciation benefits are greater than those related to older properties.

A Quantity Surveyor can conduct an inspection of the property to assess the cost of capital items (for example, hot water systems, carpets, door and window fittings) and then prepare a Depreciation Schedule advising how much you can claim each year for depreciation.  Calculations are performed using a sliding scale, meaning that you can generally claim more in the first few years when the items are newer.

More time  

When you purchase ‘off the plan’, you sign a contract today but don’t have to pay anything (other than a deposit) until the property is complete.  In some cases, this can be up to a few years away.

This can be a great benefit because it can give you more time to save for your entire contribution.

So, how does buying off the plan fit in with all the recent changes to lending?

Whilst buying ‘off the plan’ has provided great benefit in the past, due to all the changes we’ve seen recently with lending policy, it may not be as easy as it once was.  Particularly if you are thinking of purchasing an investment property ‘off the plan.’

If it’s something you’re interested in, or you have already committed to an ‘off the plan’ purchase, we can run through your options and possibly put some things in place now to assist with upcoming settlement.

*POST UPDATE* You can find more information on how recent changes may affect an ‘off the plan’ purchase here.

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