Should you Buy Off-The-Plan?
What you need to know before you sign a contract
Many buyers are cautious when it comes to buying a new, or off-the-plan, apartment.
Little wonder when newly built apartment blocks have been receiving attention for all the wrong reasons lately. Incidents such as Opal Tower, Mascot Towers and others, have put the spotlight firmly on the very real risks that can follow from making a bad buying call.
But despite the potential negatives, we think there are many reasons to be positive about buying off-the-plan apartments, as well as apartments less than 10 years old.
That is, of course, so long as you know what you’re doing.
Look beyond the glossy brochure
All new units look, well, new. So it’s often hard to tell the good from the not-so-good. Here, it’s important to look beyond the shiny new display apartment and glossy brochures.
The best way to do this is to restrict your search to well-constructed apartments from reputable developers with a good track record.
We regularly help clients carry out this kind of research before they sign on the dotted line to buy a new or off-the-plan unit. For example, we:
1. Compile and prepare detailed reports for buyers wanting to buy apartments less than 10 years old, including due diligence of the company and directors and any previous developments they’ve built.
2. Undertake a Fair Trading licence check to see if they have the appropriate licence and whether they’ve had any disciplinary action taken against them.
3. Scrutinise strata reports to check for any major capital works and to find out about any known defects, damage or the possibility of flammable cladding.
4. Get advice from mortgage brokers to see if certain areas are on a lender’s blacklist due to oversupply.
5. Guide our clients to think beyond the unit itself. An apartment’s value will always grow more over the long term if it’s in a location with lifestyle appeal and a growing population.
6. Make sure the price is right by checking comparable sales and negotiations.
What type of buyer does buying off the plan suit?
Thanks partly to recent laws, as well as favourable tax treatment, subsidies and other perks, there are several buyer groups who can benefit from buying off the plan or a newly built-property.
Under the current foreign investment rules, overseas buyers may have little choice but to purchase new or off-the-plan properties. As a group, foreign buyers include temporary residents, foreign residents and short-term visa holders from any country.
Before they can buy property in Australia, foreign buyers need to apply to the Foreign Investment Review Board (FIRB). Non-resident foreign buyers generally can’t buy established residential properties in Australia. Temporary residents are allowed to buy one established property, but only if it is their principal place of residence. In most other cases, foreign buyers are subject to additional taxes and restricted to buying new properties only.
This is all part of the government’s plan to create construction jobs, keep housing affordable and, of course, raise revenue.
First home buyers
First home buyers are another group the government actively encourages to buy new properties through stamp duty savings and the First Home Owner Grant.
In NSW, first home buyers can receive $10,000 towards buying a new property if it’s under $750,000. They also don’t have to pay any stamp duty on properties under $650,000 and get a reduced rate for properties under $800,000.
The savings from this can be enormous. For instance, a first home buyer who bought a property for $650,000 would effectively get a subsidy of $26,857.
These financial incentives can act as a genuine motivator for first home buyers to get their foot on the property ladder with an off-the-plan property.
Investors have the potential to access into the same negative gearing benefits on newly-built and off-the-plan properties that they get on established properties. But on top of this, they can also often claim depreciation. This is effectively the cost of ‘wear and tear’ on a property and can include building costs, such as brickworks or concrete, as well as plant and equipment costs, such as carpets, appliances, blinds and more.
Another great benefit of buying off-the-plan is that it can give an investor the potential for capital growth even before they actually buy the property. That’s because they get to lock in today’s prices even though they won’t settle on the property until some time in the future. Obviously, the reverse can potentially happen in a falling market and an investor can lose money when prices go down.
For investors to get the most out of buying a new property, they should always look to get the fundamentals right. This includes making sure it’s in a blue ribbon location, that the construction quality is high, that the property appeals to a wide range of tenants and that they pay a fair price for it.
Retirees and downsizers
Retirees and downsizers are increasingly starting to prize newly built and off-the-plan apartments for the genuine lifestyle benefits they can offer.
A brand-new home often comes with great modern amenities and added bells and whistles. This can include lifts, communal entertainment areas, a pool or a gym. New buildings are also typically well maintained, often have better natural light and, so long as they’re well constructed, usually won’t require as many repairs, renovations or upgrades as an older property might.
This can improve quality of life and reduce running costs.
Considering buying off the plan?
As you can see, there are definite advantages to buying a new apartment, so you shouldn’t ignore the idea just because newbuilds have received some recent bad publicity. But, at the same time, the added risks of buying new mean you should never go into it blind. You need to know all the facts before you sign on the dotted line.