Off the Plan Property: What Does off the plan property mean?
You’ve presumably heard so many stories about people that bought property off-plan and lost thousands of dollars. However, you’ve probably heard of people as well who have made huge profits by purchasing off-plan.
So, which of these stories is true? Both of them.
Buying off-plan can be extremely risky or extremely profitable, depending on where and when you do it, as well as the precautions you take to protect yourself. While being the first to buy a property that has never been lived in can be exciting and offer numerous benefits, there are also risks associated with putting your money into something that is not yet finished.
What is an off-the-plan property?
Off-plan properties are usually sold before the construction of their structures begins. This type of property usually has lower prices and better terms than standard ones.
Investors who buy off-plan property are typically looking for long-term capital gains. The potential return on their investment is often significant. Off-plan property is typically deemed appealing if there is a high level of infrastructure in the immediate area, such as a new university or expressways that are either already built or are scheduled to be built in the coming years.
Purchasing a house, apartment or townhouse “off-the-plan” entails signing a contract to purchase a property that has yet to be constructed. You can see the developer’s plans, designs, and renderings for the property, but you can’t see the actual building. Typically, purchasers pay a 10% down payment, with the remaining funds not due until construction is completed. Construction time varies, it could be a few months or several years, with houses generally taking less time and apartments taking more time.
The overall process of purchasing an off-the-plan property is straightforward. You may receive digitalized imagery of the property, view scaled models, or even visit real-life showrooms to get a sense of what your off-the-plan property will look like when finished. You then make a decision based on the property’s plans, location, and anticipated finishing touches.
Why Should You Invest in Off-Plan Property?
There are numerous reasons to consider purchasing an off-the-plan property. For starters, the property remains a versatile, rewarding, and dependable asset in any portfolio, with the potential to generate two distinct income streams.
This asset also has a much higher potential for long-term growth than traditional property investment. Because Off Plan requires an investor to purchase a property before it is finished, there is always the possibility that surrounding property prices will rise, resulting in clear returns for the investor.
This also has the additional benefit of providing an investor with a guaranteed new-build unit that they can hand-pick if they act quickly enough.
Benefits of Purchasing Off the Plan property
Off-plan is unparalleled in the property investment world in terms of the various strategies it can be adapted to. Listed below are few advantages-
When compared to an established property, the purchase price may be lower because developers typically offer lower prices and financial incentives early on to secure the project, particularly before construction begins.
You will only have to pay a deposit to the developer and the remaining balance when the property is completed. This means you’ll have more time to save before closing while the house is being built.
Off-the-plan properties are new or refurbished constructions. This ensures a modern build with modern features such as energy efficiency, environmentally friendly requirements, and other demands that new builds must meet. This generally results in lower bills for tenants and potentially higher rental prices in the future.
Even if you did not have to pay the entire balance, your property’s value may increase as it is built, providing you with capital growth.
On new properties, there is more tax depreciation available, allowing you to maximize benefits and improve after-tax cash flow.
The sooner you start buying off the plan, the more you should be able to customize your property, including choosing the location as well as the floor plans and finishes.
Depending on the state or territory, you should be covered by builders’ warranty insurance while your home is being built, which means that any structural or interior building flaws that appear within a certain timeline must be repaired by the builder.
Stamp duty exemptions or concessions may be available in some states and territories, and certain tax deductions may be available to property investors.
Risks of Off-Plan Property
As with any investment, there are risks, which is why it is critical to work with a reputable property developer. There are a few things listed below that must be considered before acquiring an off-the-plan property-
Spend time researching the project’s members, such as the developer, builder, architect, and financier. Check to see what brands are being used for fixtures such as the dishwasher and oven, as well as what brands will be used if the first choice is not available.
If you are an investor, the developer may offer a rental guarantee; however, these costs are frequently included in the purchase price and are only valid for a limited time. Examine comparable properties in the area to determine whether you’ll be able to afford the property once the rent reaches the market value.
Other properties may be built in the same area, so check with the local council about zoning and future developments to ensure they won’t affect your purchase.
A change in your financial situation, market declines, or interest rate increases between the time you agree to buy and the time you buy the property may have an impact on your ability to service the loan and/or resell.
There are some cases where development is halted. If this occurs, you should receive your deposit back, however, by tying up your money, you may have missed out on interest and capital gains from other investments.
Things can be delayed, which can cause your money to become tangled. Look for any ‘sunset clauses’ in the contract of sale to determine how much time the developer has to complete the project.
Although banks and other lenders may provide conditional approval for off-the-plan purchases before construction begins, they will not loan you any money until the property has been built, a valuation of the finished product has been performed, and your financial situation has been re-evaluated.
A conveyancer or solicitor will need to go over the contract with you carefully. Look for any unanticipated costs or conditions that may arise in the future. Consider what will happen if things do not go as planned. Some key questions to consider include:
What happens if the project is completed sooner or later than expected?
Who bears responsibility for any flaws?
Can you resell the property before it is finished?
When investing in Off-Plan Property, there are usually two goals in mind: rental returns and initial capital growth, both of which can be achieved depending on the location and type of property. Buying Off-Plan property has a slightly different initial process than buying pre-tenanted or pre-built Buy-to-Let properties, but it has its distinct advantages and benefits, especially if you’re looking to maximize long-term returns.
When to buy and sell your Off-Plan properties is entirely up to you. Many people choose to sell the property once it is finished, reaping the benefits of capital growth during the construction process, which can take several years. Others choose to rent out the property, resulting in higher yields and long-term capital growth. The rental yield varies according to location, purchase price, and demand in the area.