Buying off the plan apartments has become an increasingly popular choice for many property investors and homebuyers. Buying off the plan allows you to secure a property before it’s constructed, often at a lower price than when the development is complete.
However, like any investment, purchasing off-the-plan apartments comes with its own set of risks and benefits. In this article, we will explore the various aspects of buying off the plan in Sydney, providing valuable tips and strategies to make an informed decision.
In this guide, we will comprehensively explore the art of buying off-the-plan properties, detailing its perks, pitfalls, and pro tips for the discerning investor.
Table of Contents
What is Buying Off The Plan?
Buying off the plan, also known as purchasing off-plan or pre-construction, is a real estate investment or homebuying strategy where individuals commit to buying a property that is not yet built or is in the early stages of construction.
In this scenario, buyers make their purchasing decisions based on architectural plans, artist’s impressions, and other design documentation provided by the developer, rather than having the opportunity to inspect a completed property physically.
5 Benefits of Buying Off The Plan Property
1. Time to Get Ready
When you buy an off-the-plan property, you get 1-2 years to prepare your finances. You start with as little as 5% deposit, have your contract checked by a solicitor, and then wait. During this time, you can save money without worrying about mortgage payments.
It’s smart to put some money aside each month while the property is being built. By the time you need to make the final payment, you’ll have saved another 15% of the property’s value. For example, if your property costs $500,000 and you put down a $25,000 (5%) deposit, you’ll need to save another $75,000 to have a 20% deposit for the final payment.
2. Price Lock-In
When you buy off the plan, you lock in the property’s price from the day you sign the contract. This means you don’t need to worry about the price going up due to inflation or a hot property market. This could actually lead to a good return on investment (ROI).
Using the same example as before, if you put down a 10% deposit of $50,000, and the property’s value goes up by $50,000 by the time it’s finished, you’ve doubled your initial deposit.
3. Grants & Assistance Schemes
In New South Wales (NSW), the government has implemented several grants and assistance programs tailored for first-home buyers, and these initiatives extend to individuals purchasing off-the-plan properties.
Additionally, the First-Home-Buyer Assistance Scheme provides eligible buyers with either full or partial exemptions from transfer duty.
Furthermore, the First-Home-Owner Grant, accessible to those who meet the criteria, offers an extra $10,000, supplementing the benefits obtained through the First-Home-Buyer Assistance Scheme.
4. Stamp Duty Benefits
When you buy a property, you usually have to pay stamp duty within three months of signing the contract (though there are exceptions for first-time homebuyers).
However, regarding buying off-the-plan properties, you get more time. You can pay it within 15 months after signing the contract or when the property is finished. Just keep in mind that this only applies if you plan to live in the property. If you’re an investor, you still have to pay within the standard three months.
Notes:
Since July 2016, property purchasers and transferees must meet specific residency criteria, which include being either an Australian citizen or a permanent resident residing in Australia for over 200 days within the 12 months immediately prior to contract exchange.
Certain foreign nationals from specific nations may also qualify for off-the-plan benefits if they meet the residency requirements outlined in international tax treaties. You can access the complete list of eligible nations and detailed information regarding the implications of international tax treaties here.
5. Tax Benefits for Investors
If you’re purchasing for investment purposes, buying off the plan might make you eligible for tax advantages. Here are the top 3 tax benefits while buying off-the-plan properties.
- Negative Gearing: Offset property-related losses against your taxable income, reducing your overall tax liability.
- Capital Gains Tax (CGT) Discount: Enjoy a 50% reduction in CGT if you hold the investment property for over 12 months.
- Depreciation Deductions: Claim tax deductions for property depreciation, including structural and capital assets, fixtures, and fittings.
Tax regulations can be intricate, so it’s advisable to consult with your accountant or a registered tax agent to clarify your specific situation.
The Risks Associated With Buying Off The Plan
When buying off the plan, there are several risks that prospective property buyers should be aware of. These risks can have financial and legal implications, making it important to consider them before committing to an off-the-plan purchase. Here are the key risks associated with buying off the plan:
1. Construction Delays
Off-the-plan purchases often involve waiting for the construction of the property to be completed.
However, there is a risk of delays due to various factors, such as bad weather, labour disputes, or unexpected construction challenges. These delays can result in a longer wait before you can move into or start earning rental income from your property.
2. Changes in Market Conditions
The real estate market can be unpredictable and subject to fluctuations. While you may have bought the property at a particular price when signing the contract, market conditions can change during the construction period.
If the market experiences a downturn, the property’s value may not appreciate as expected, affecting your potential return on investment.
3. Developer Reliability
The success of your off-the-plan investment is heavily dependent on the developer’s ability to deliver the project as promised.
It’s crucial to thoroughly research the developer’s track record, financial stability, and reputation to ensure they can complete the project to your satisfaction. If the developer encounters financial difficulties, it could impact the project’s completion.
Protecting Your Investment
Legal protections are available to off-the-plan buyers to safeguard their investments. Deposits and other instalment funds paid under an off-the-plan contract must be held in a trust or controlled money account in the event of a developer’s insolvency.
Understanding sunset clauses
Sunset clauses are contract termination clauses that enable developers to terminate a contract if certain conditions are not met. The developer must finish the project by the date specified in the sunset clause. Failure to do so will render the contract null and void – the buyer’s deposit will be refunded. Developers are legally obligated to secure the buyer’s approval before terminating a contract via a sunset clause.
Knowing your rights regarding sunset clauses can help you protect your investment in an off-the-plan property.
Cooling-off period and deposit protection
The cooling-off period for off-the-plan contracts is typically 10 business days, during which the buyer can cancel the contract without incurring any penalties. In some states, such as Victoria, the deposit required for off-the-plan purchases is limited to no more than 10% of the purchase price. This contract period offers a level of protection for buyers in case they change their minds.
Getting acquainted with the cooling-off period and deposit protection measures enhances the security of your off-the-plan investment, including the handling of your cash deposit.
Buying Off The Plan: Tips for a Successful Property Purchase
Buying off the plan properties can be a rewarding investment strategy, but it requires careful planning and consideration. Here are five tips to help you navigate a successful off-the-plan property purchase:
1. Research the Developer
Investigate the developer’s reputation, track record, and financial stability. Look for past projects they’ve completed and consider visiting them if possible. A reputable developer is more likely to deliver on their promises.
2. Due Diligence on Contracts
Thoroughly review all contract documentation and disclosure statements. Seek legal advice to ensure you understand the terms and conditions, as well as your rights and obligations. Make sure you are comfortable with the contract before signing.
3. Consider the Location
Location is a crucial factor in property investment. Ensure the off-the-plan property is situated in a desirable area with strong growth potential, good infrastructure, and proximity to amenities like schools, transport, and shopping centres.
4. Stay Informed about Market Trends
Keep a close eye on the real estate market in your chosen area. Understanding market trends and developments will help you make informed decisions, especially if market conditions change during the construction period.
5. Inspect Progress and Seek Reports
If possible, attend site visits to monitor the progress of construction. Request regular progress reports from the developer to ensure that construction is on schedule and meets your expectations. This proactive approach can help you address any issues early on.
By following these tips and conducting due diligence, you can increase your chances of a successful off-the-plan property purchase and make an investment that aligns with your financial goals and property aspirations.
How St Trinity Can Assist You with Buying Off The Plan Apartments
Investing in off-the-plan apartments can be a complex process, and having the right support is essential to navigate the nuances of this real estate strategy. St Trinity is your trusted partner in making a successful off-the-plan property purchase. Here’s how we can assist you:
1. Extensive Market Knowledge: Our team is well-versed in the real estate market, with a deep understanding of trends, locations, and emerging opportunities. We provide valuable insights into areas with growth potential, ensuring your investment aligns with your objectives.
2. Developer Relationships: We established strong relationships with reputable developers, granting you access to a curated selection of off-the-plan properties. We work with developers known for quality and reliability, enhancing the chances of a successful investment.
3. Tailored Advice to Your Situation: We work closely with you to understand your buying objectives, helping you select off-the-plan properties that match your requirements. Our team can provide financial advice, including insights into financing options and strategies to maximize your investment’s potential. We help you make informed financial decisions that align with your goals.
St Trinity is committed to ensuring your off-the-plan property purchase is a successful and rewarding experience. With our market expertise, developer relationships, legal support, and personalized guidance, we aim to provide you with the confidence and knowledge needed to make a sound investment decision. Let us be your partner in achieving your property investment aspirations.
Bottom Line
In wrapping up, the decision to buy off-the-plan property can be a rewarding one when done with a mix of caution, research, and strategic planning. As with all investments, being well-informed paves the way for a venture that’s both profitable and satisfying. But there’s a shortcut to that — call the most experienced property consultants today!
Contact us today to access the tailored advice.
