‘Off plan’ property purchasers are becoming more and more popular not only for investors who seek to maximise their returns, but also for families, professional couples and retirees who are in search of a new home or holiday home abroad. This method of buying has seen spectacular profits for purchasers over the past couple of years in Tenerife, Fuerteventura and the Costa del Sol.

Buying ‘off plans’ means that. You reserve a property on a new development before the construction is completed, often before it has even started, and in some cases even before the developer has been granted the licence to build.

Bargain basement prices

Because you’re being asked to buy an architect’s drawing and an empty plot of land, the prices are tagged accordingly. In addition, normally you only have to pay approximately 30 per cent of the purchase price as a deposit and then nothing more until completion of the construction, which can then be financed by a 70 per cent mortgage.

Pick of the crop

Buying off plans affords the purchaser to have the first choice of individual properties on a development. Normally when a development is sold, the penthouses, corner units and ground floor apartments with private gardens go first.

Up, up and away

As construction begins and the development begins to take shape or a show home is completed, the price is increased substantially as other prospective purchasers with less imagination than your good selves can see what the homes will look like.

Gift wrapped

Once the development is completely finished, other purchasers are naturally willing to pay more for the finished product decorated with gardens and pool rather than an empty plot of cement and rubble.

Would you buy a property that you couldn’t use for 18 months? Yes, if you’re a wise investor.

What’s in it for the developer?

At the time of pre-construction the developer is eager to sell as many units as possible to minimise his risk and to negotiate lower interest rates from their investors thus the properties are priced extremely competitively at this stage.

Remember, a 30 per cent deposit is often all you need to invest off plans. Many raise this money by releasing equity in property they already own by remortgaging. A case of borrowing money at a relatively low interest rate and investing it into an investment paying a substantially higher rate. You do the maths!

Buying 'Off The Plan'

As the term suggests, buying 'off the plan' means entering into a contract to purchase a property prior to its construction. This property must be built from a plan of subdivision and will therefore commonly be a unit or townhouse.

Advantages and Disadvantages

The main advantage to buying 'off the plan' is the considerable saving you can make on Stamp Duty.

In some Australian states, the law requires Stamp Duty be paid on the value of the property at the time of signing the purchase agreement (contract). By buying ‘off the plan’ you often enter into a contract before construction commences and therefore need only pay stamp duty on the value of the vacant land.

Also, in a rising market property market, it is possible for the value of your asset to increase between the period of signing the contract and moving in. So, buying off the plan can offer significant savings compared to buying an existing building.

One further advantage to buying 'off the plan' is that you will eventually more into a brand new property. You may even have been able to select the fittings (e.g. lights, carpet and dishwasher) for your home.

And finally, buying 'off the plan' can offer you extra time to save your money for future mortgage repayments. A deposit will be required when you sign the contract, however the balance should not be required until construction is completed. This can take many months to several years, during which time you can grow your savings.

Disadvantages include the possibility of the market price falling between the time you sign the contract and move in. Under this scenario you would have paid more Stamp Duty for the land upon signing the contract than you would have needed to had you bought the land at the later date. You do however still stand to make Stamp Duty savings on the building itself.

The main disadvantage for many people however is the delay that exists between signing the contract and moving into their new apartment/townhouse. This lag can take many months to several years. Often people do not want to, or simply cannot, wait this long.

Also, it can be very difficult to visualise exactly how your property is going to look when buying 'off the plan'. Some people prefer to see the finished product before committing to a property purchase. Therefore, if you do decide to buy ‘off the plan’ it is vital you choose your townhouse/apartment with care, as explained in the following section.

Please note:

An off the plan purchase agreement under the NSW Duties Act 1997 means an agreement for the sale or transfer of dutiable property, being land on which a residence is to be erected or developed before completion of the sale or transfer.

In NSW Section 49A of the Duties Act provides that in relation to an "off the plan" purchase duty is payable on either:
a) completion of the agreement, or
b) on the assignment of the whole or any part of the purchaser's interest under the agreement, or
c) on the expiration of 12 months after the date of the agreement, whichever first occurs.

Duty must be paid within three months of this date to avoid penalties.

In NSW duty is payable on the property agreed to be transferred. Under an "off the plan" purchase agreement, the property agreed to be transferred is the completed dwelling and duty is payable on the value of such dwelling. The consideration would normally reflect such value.

How to choose a townhouse/unit

1. Firstly, visit the location of the subdivision and determine whether the location meets your criteria. Finding a location that suits your lifestyle is also very important. Often one of the most important factors to buyers is their distance from work. Perhaps you need to be located close to specific amenities. Look through the following list and note down those factors that are important to you.

Travel time

Work place close

Access to public transport

Family/friends nearby

Shopping facilities

Medical facilities

Educational Facilities

Childcare

Pre-school

Primary school

Secondary school

University

Recreational Facilities

Parks

Sporting facilities (e.g. sports grounds, gyms, tennis courts, pools, etc.)

Beaches

Libraries

Entertainment

Environment

Appealing streetscape

Low noise area (away from traffic, flight paths and industry)

Clean air

2. Next, thoroughly research the proposed development. Usually, the developer will have an on-site display office, so drop in. Look over sketches showing how the apartment/townhouse will look once completed (both inside and out) and how this unit will fit into the overall development. Also inspect any samples of the materials to be used in the construction. Find out your options with regards to materials, fittings, unit layout and overall size.

3. The next step is to inspect the developer’s previous work. You need to be satisfied that the end product will be of the quality you desire. Therefore, ask for the address of several of the developer’s other projects and where possible, arrange to inspect these. Also try to obtain referrals to people who have purchased from the developer. Find out if they are happy with the quality of their home.

4. Is the price reasonable? Research other similar developments nearby and find out the price at which similarly sized units are selling. By this stage you will need to have defined the final finishes you want for your apartment/townhouse (e.g. fittings, carpets, paints, curtains, etc.) so that you are sure of the exact asking price of the property.

5. If after all this research you are keen to pursue purchasing ‘off the plan’ obtain a copy of the purchase contract. Have a solicitor review this document thoroughly. For more information, read our section on contract details when buying ‘off the plan’.

6. Once you and your solicitor are happy with the contract details, and finance has been approved, you are ready to sign this document and pay a holding deposit. Generally this deposit is 10 per cent of the purchase price.

7. Next comes the wait while construction is carried out. Use this time to plan your move and save money for paying the balance of the purchase price. Only after construction is 100% complete and you are satisfied with an inspection of the work should you pay over the balance of your new apartment’s purchase price.

The contract details

When buying an apartment or townhouse ‘off the plan’ it is important that you read the contract carefully and understand its contents. Have a solicitor check over this document for you and explain to you any points you do not grasp. When reviewing this document:

Check that the specifications and plans meet your requirements and have been drawn up exactly as you expected. It is a good idea to employ your own independent architect or builder to appraise these plans.
Also look over the building plan and take note of how close your apartment is to common areas such as stairways, entry areas and lifts. You do not want to live too close to these high noise areas, nor do you want to be too far away from the conveniences they provide.
Check the completion date. Are there penalties if the developer does not finish construction on time?
Add a clause stating that the vendor must advise you of any changes (even minor changes) to the plan.
Ensure that warranties as to the standard of the works and the fittings are contained within the contract.
Make sure that all fittings are outlined and accurately described. For example, if your apartment is to come with a new dishwasher, the contract should outline the brand and model of this machine. The contract should also state that the developer is responsible for the installation of all basic services (including telephone and television wiring).
Check that the developer will insure the property and fittings until the settlement date (the day you take possession of the property). You should also be able to terminate the contract before settlement if the property undergoes structural damage.
Review any Body Corporate regulations. Do these suit your lifestyle? For example, are you allowed to keep an animal on your property?
Ensure that the contract makes reference to the way in which outgoings will be apportioned between residents (e.g. water, power and electricity services) if your unit is not metered separately to other units in the development.
It may also be wise to have the contract permit you to on-sell your property prior to completion. Check with your solicitor and the developer.

This information is intended as a guide and is not legal advice. Do not rely on this information when making legal or financial decisions. For legal advice please see a lawyer. Each state has different property laws and this information will not be accurate for each country and state.