Buying off-the-plan is very different to a traditional property purchase when you enter into an agreement with a developer to purchase a property that is yet to be built. There are many benefits to this approach including being a great way for first-time buyers to take that first step onto the property ladder.
Off-the-plan provides the opportunity to ‘buy’ more time to continue to save while the property is being built, whilst having the peace of mind of already having purchased and locked in the price.
Here are my 5 keys to success for achieving a smooth and hassle-free purchase when buying off the plan:
1. Get in early
When buying off the plan, it’s usually the case that the first release of properties will be the lowest priced. This is the time to snap up a great deal. This is because developers require quick early sales, often to secure the financing for the remainder of the project. Conversely, depending on sales for the remainder of the development, the prices on the final release will often be increased in order to compensate for lost profits.
It is still important to exercise caution as many developers will require up to half of the apartments to be sold in order to commence work. If you’re in early, you could be looking at quite a wait before you have the keys to your new place. From the first sales, a ‘sunset’ period of about 18 months is commonplace.
2. Location, location, location
Researching and really knowing the area that you’re investing in becomes even more crucial when buying off the plan. As it can be years between the property purchase and the completion of the development, one of three things can happen. The prices for the area may remain steady, or capital growth may result in your property being worth much more at settlement than it was when purchased. On the flip side, the value may actually fall in the interim, so it’s important to seek professional advice for an expert opinion on the expected market movements for your purchase area.
3. Check the contract
It’s important to note that a contract for an off-the-plan purchase is structured quite differently to other property contracts. When checking an off-the-plan contract, factors such as the anticipated completion time, warranties, and the cooling off period need to be carefully analysed. Overall, it’s essential to consult your mortgage professional to ensure that the contract will adequately protect your rights in the event of the project being delayed or not completed and to ensure that the finished property is built in accordance with what is in the development plan.
4. Figure out the financing
Another important component of contract checking is ensuring that any agreement is subject to suitable and adequate financing being obtained. Gaining finance for an off-the-plan purchase is not as straightforward as many other types of property purchase. For starters, you’ll need to confirm with your lender that you’re able to be approved for the finance, whilst the development is still under way. Some lenders are hesitant when it comes to off-the-plan financing, as the projected value of the property is uncertain, as explained in tip 2. A mortgage adviser can help you identify the lender that will best suit your needs, so that you’re not at risk of potentially blemishing your credit record with a loan rejection.
5. Read up and do your research
As well as thoroughly researching the area in which you intend to buy off-the-plan, as outlined in tip 2, there are other factors that require careful consideration before you decide whether this is the right option for you. Perhaps one of the most important is to perform a background check on the development company. Start with their website, which will provide details of their previous and current projects. Any reputable company will outline clearly who the directors are, will display the relevant licence numbers, and will provide full contact details. A failure to provide any of these should set the alarm bells ringing. Once the licence numbers have been obtained, run a check with your relevant state government body. If this search reveals anything concerning, you may wish to reconsider the contract, and look at other developers for your off-the-plan purchase.