For as long as we've known, there have been a bunch of advantages to buying off the plan, but with the many collapsing building projects across Australia, including Perth, it certainly highlights the risks of buying property “off-the-plan” at a challenging time for the building industry.
Let's look at some pro's and cons to this type of purchase. Most importantly, as buyers, it’s crucial that you thoroughly understand what you are getting into before you sign on that dotted line.
What is “off the plan”?
In a nutshell, buying off the plan refers to purchasing a property having just viewed the floorplans alone.
As you are unable to inspect a physical property, it’s important that you thoroughly understand and feel comfortable with every aspect of the floorplan and contract. It’s very likely that you will only be shown plans, clauses and fine print – which could lead to disappointment once the property has been built. Some builders offer viewings of display homes which showcase a similar design or concept to help buyers visualise, but again, these are merely an example.
Things for buyers to consider...
1. Have you received the full set of detailed drawing plans for the property?
The building plans should show the full dimensions (in millimetres) of all rooms including bedrooms, bathrooms, kitchen and laundry, including all door and window locations and sizes. The detailed drawing must also show wall and floor tiling layouts, window and cupboard placements. All of these plans should be to scale.
2. Have you received a full building specification?
The specifications for your property should include the cabinet materials and finishes: appliance models and makes, wall and floor tiling, tapware models and makes, electric fittings, garage door model and more.
The common area features should include the make and model details. For example, window, door, light fitting, garage door and air-conditioning unit make and model information.
These might seem like minor aspects but it is important you are made aware of every small detail of your property and are happy with the quality of the specifications.
3. Know your building company!
This is a crucial aspect to the quality of construction of the property. Once the builder has been identified, it is important that you research some of their past projects. Consider visiting some of their finished properties to gauge the quality of their work.
4. If applicable, has a strata management company been selected?
The strata management company will be very important to your property once completed, ensuring that everything is maintained and managed efficiently. If the strata company has been selected, you will able to conduct some of your own research on their services and some of their current managed properties.
If it is a strata plan, ensure you are made fully aware of all of the rates. You should know these prior to making your offer to purchase. This will eliminate the possibility of you buying a property with strata fees that you are unhappy with.
5. Are the plans dimensions and layouts fixed?
The building plans supplied must be fixed and not be open to amendments during construction. If this is not documented in your sale contact, you might find yourself in a property you did not approve of. It’s best to avoid this possible situation at all costs as it will be a futile battle once the property is built.
So with these important aspects in mind, it is time to weigh up the pros and cons:
Pros
In a sense, you will be securing the property at a discounted price. You will pay the current market value, even though it will be completed in the future and possibly increase in value.
You are securing a high value asset for a low initial capital outlay. While a deposit will be made to secure the property but the balance of the purchase price does not need to be paid until the property has been built- Giving you time to organise your finances.
You might have the opportunity to give the property a personal touch. Often a buyer has the option to customise the property such as using different colours, finishes and layouts which the developer may be able to incorporate. You may also have the option to change structural aspects such as removing the third bedroom to create a larger living area or putting in a media room instead. You may even be able to merge two apartments into one large one, choosing certain fittings and fixtures accordingly.
The property will be brand new- creating the peace of mind that no aspect of the home has depreciated.
The property is built to suit today’s property demands. Off the plan properties are built to reflect today’s taste and preferences such as open plan living areas, larger balconies and in-house amenities such as a pool, gym and concierge services.
Being a brand new home, first time buyers are eligible for the WA First Home Owner Grant which offers up to $10,000.
Cons
The final product is unknown. Purchasing a property without having viewed it physically can be risky, especially if it’s your first property. The finished product might not be the precise quality, standard or look you had envisioned, leading to disappointment.
There is also the chance of unexpected issues arising. For example, the Vendor may register By Laws that give exclusive use of the common property to certain lots. In this circumstance, other buyers in the development may have been unaware of this and not expected that the building would have communication towers, signage or exclusive use of the roof garden, for example.
Off-the-plan developments can be delayed years, or never proceed, as builders face trades and materials shortages, soaring construction costs and delays exacerbated by the COVID-19 pandemic.
Finance might not be available by the time the property is completed. Your bank may not be able to offer unconditional bank approval, instead offering pre-approval for “Off the Plan” buyers. However, with pre-approval it is not guaranteed that the bank will give you a loan until the property is complete. At the time of settlement, when the property is completed, banks may not be willing to lend the same amount, the valuation may be lower than the purchase price or the buyer’s income and circumstances may have changed.
There is a chance of defects. While this might be covered in the Clauses of the contract, particular attention needs to be given to ensure that your interests and rights are protected following completion.
While it’s an extreme rarity, there is always a slight chance that the property developer might experience bankruptcy before the completion of the property.