Buying a property ‘off the plan’

When purchasing products, we often prefer to buy brand new. When it comes to purchasing a house, should your mentality be the same?

We often get asked by people whether they should purchase off the plan. Unfortunately it’s not as simple as a yes or no answer - it really depends on your situation and strategy. There are pros and cons to purchasing off the plan but these will differ depending on whether you are purchasing to reside or to invest.

One of the biggest pros to buying off-the-plan is the potential savings on stamp duty. When purchasing an existing house, the stamp duty is calculated on the full purchase price of that house. However, for off the plan purchases you're only paying stamp duty on the land value at the time of the purchase and not on the whole property's value. That alone can save tens of thousands of dollars.

Another advantage to purchasing off the plan is that everything is brand new! This means little to no maintenance and no surprise repair costs. Also, every new home should be covered by warranties and builders guarantees.

The above benefits will apply regardless if you are planning on living in the property or using it as an investment.

If you are looking to use the property as an investment and put it on the rental market you will be entitled to additional benefits.

One of those benefits is that the new properties receive excellent depreciation benefits, often up to ten thousand dollars a year over the first five years and then substantial depreciation for up to forty years. To find out how much you can claim make sure to speak to your accountant and get a depreciation schedule drawn up.

Another advantage is that tenants prefer to live in newer homes and generally they will pay a little more compared to older style and renovated apartments.

So all this sounding pretty enticing so far? Let’s run through things you should watch out for.

So what are some of the negatives to buying off-the-plan?

The first, and most noteworthy, is that because you are purchasing direct from the developer you may be paying an inflated price. At the end of the day, the developer needs to make a profit and they are also required to pay GST when they're selling a brand new property. So the price they set will incorporate their profit margin and also the GST that they paid, resulting in the price potentially being above market value which can cause issues with your approved loan amount if the valuation comes in below what you paid.

Additionally, when it comes to large brand-new off-the-plan apartment blocks, typically they will settle around the same time resulting in a large influx of rental stock that are all identical. This can make it harder to get a tenant in there for the price that you want. To a lesser degree, this will apply to large development estates where there is a lot of stock being built.

Another consideration when purchasing off the plan is that it will be brand new! Being brand new can be both a pro and a con. When it comes to manufacturing equity (that is, adding value to your existing property through renovation or other means) you wont have the opportunity to do so when everything is already new. Adding instant equity through value-add renovations is just not possible.

So take everything that we have discussed under consideration when deciding on off-the-plan properties. When in doubt, consult with one of our Proeprty Specialists for sound advice that dovetails with your property strategy.