Buying off the plan can be a smart and affordable choice compared to buying an existing property. But it also comes with potential risks. Let’s look at the reasons for and against.
There will always be pros and cons with any investment, so how can you ensure you minimise the risks?
Understand the location you are purchasing the property in and what the current market conditions are. Then make sure a reputable developer is working on the project. Review their past work, do license checks, find out their financial situation and try and seek feedback from others.Review the contract with a legal professionalTaking the time to go through the contract with a conveyancer or solicitor is extremely important.
You will want to make sure that the contract is subject to you obtaining finance within a certain time frame from when you sign the contract.While securing finance for an off-the-plan property doesn’t differ too much to getting a loan for an existing property, you will have to apply for a loan within 3 months of the home being complete. Sometimes you have to put a deposit down a year in advance too, which can be a struggle for some buyers.
A recent BIS Oxford Economic study forecast a marked slowdown in unit construction through 2019, as oversupply in Melbourne, Brisbane and Sydney starts to cool the market.Docklands, Melbourne apartments built in the past five years have either dropped in value or seen no price growth. NAB recently predicted that unit prices in the capital city will fall by 2.6% by the end of 2017 and then drop a further 2.4% in 2018.A buyer that has already paid a deposit and is awaiting completion in the next year or so could find themselves needing to make up the shortfall themselves.Sydney’s median house and apartment prices are expected to fall 4% by 2020, with Brisbane units predicted to fall by 7% according to the same BIS Oxford Economics study.Does this mean that an off-the-plan purchase is not wise in today’s market?Not necessarily. An off-the-plan purchase can still make a great investment if you are purchasing in an area that has high demand and low supply. Look for a reputable developer with a proven track record.Opportunities to purchase will appear where completion of the property is not too far away, leaving you less at the mercy of the market if you are familiar with the conditions in the area you are purchasing in.