What Are The Main Risks vs Benefits In Buying Off The Plan Property
Buying property off the plan in Australia has become an increasingly popular option for buyers looking to enter the property market. However, like any investment, there are both risks and benefits associated with this type of purchase.
5 Benefits of buying off the plan property:
1. Lower prices:
One of the most significant benefits of buying off the plan property in Australia is the potential for lower prices. Developers often offer discounts to buyers who purchase a property before it is built, which can result in significant savings.
2. Customization options:
Buying off the plan often provides buyers with the opportunity to customize their property. Buyers can select finishes, colours, and other design elements to make the property their own. This can be especially appealing to buyers who have specific tastes or requirements for their property.
3. Stamp duty savings:
Buyers may be eligible for stamp duty savings when they purchase off the plan. In some states, stamp duty is calculated based on the contract price of the property. By purchasing off the plan, buyers may be able to take advantage of stamp duty concessions or exemptions.
4. Potential for capital gains:
Property values tend to increase over time, and buying off the plan can be a good way to take advantage of this trend. By purchasing a property before it is built, buyers have the potential to realize significant capital gains if property values increase over the construction period.
5. Better rental yields:
Buying off the plan can also be a good option for investors who are looking for higher rental yields. New properties often command higher rental prices, and investors can often secure tenants before the property is even completed, providing a steady stream of rental income from day one.
5 Risks of buying off the plan property:
1. Construction delays:
One of the most significant risks of buying off the plan is construction delays. Developers may encounter unforeseen circumstances that cause delays in the completion of the property, which can result in significant financial losses for the buyer.
2. Changes to the property design:
Developers may make changes to the property design during the construction process, which can result in a property that is different from what the buyer originally expected. This can be especially problematic for buyers who have specific requirements or preferences for their property.
3. Financing risks:
Buying off the plan often requires buyers to secure financing before the property is completed. This can be risky, as interest rates or lending criteria may change between the time of the contract signing and the time of settlement.
4. Market fluctuations:
Property values are subject to market fluctuations, and there is no guarantee that property values will increase over the construction period. Buyers may be exposed to significant financial losses if property values decline during the construction period.
5. Developer insolvency:
In rare cases, developers may become insolvent before completing the property, which can result in significant financial losses for buyers. This risk can be mitigated by conducting due diligence on the developer before committing to a contract.
Mitigating the risks of buying off the plan property:
While there are risks associated with buying off the plan property, there are also steps that buyers can take to mitigate these risks:
1. Conduct due diligence on the developer
Before committing to a purchase, buyers should conduct thorough due diligence on the developer. This can include researching their track record, checking their financial stability, and reviewing any previous projects they have completed.
2. Carefully review the contract terms
Buyers should carefully review the contract terms before committing to a purchase. This can include understanding the cooling-off period, deposit requirements, and any clauses that allow for changes to the property design.
3. Seek professional advice
Buyers should seek professional advice from a solicitor or conveyancer before committing to a purchase. They can help buyers understand their rights and obligations under the contract and identify any potential risks.
4. Consider a fixed-price contract
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About Anjay Zazulak, Buyer and Vendor Advocate
Property Mavens Senior Buyer and Vendor Advocate, Anjay Zazulak, is a Licensed Estate Agent, Author of "The Home Owner’s Guide to Property Investment" book. With his qualifications in Bachelor of Property and his intimate knowledge in Albury-Wodonga and Sydney area, he’s uniquely qualified to develop and also fulfill successful and sustainable property investment strategies for his diverse range of clients - investors, SMSF trustees, and home buyers alike.
