Buying Off the Plan in Melbourne
Buying off the plan: four tips for a smooth purchase
When you buy off the plan you can look forward to moving into a brand new place, all the while avoiding that pesky stamp duty. But it’s also worth being aware of the potential risks. Here are three tips to ensuring it all goes off without a hitch.
- Know your builder or developer
It’s a sad fact that some people get stung by dodgy builders. And even if the builder is trustworthy, a weak market or changing economic conditions can leave builders exposed to financial risk. That’s why it’s vital to know who the builder or construction company is, what work they’ve done in the past, and whether previous customers have been happy with their work.
Make sure you research the builder, check online forums for reviews, and – if possible – visit projects they’ve already completed.
When it comes to the actual build, make sure you understand the construction timelines, and what control you have over finishes (bench surfaces, paint colour, knobs and handles, curtains and blinds, etc.) and appliances. It might even be worth asking whether you can visit a few times during construction.
- Understand the contract and other risks
Your contract is a very important legal document, and you should make sure you’ve been through it very carefully with a property lawyer. This may seem like an unnecessary expense, but in the long run, it’s much better to be thorough at this early stage. Also chat to your broker about problems or risks that can occur when buying off the plan. Contact Us if you are thinking of purchasing.
It’s very common for construction projects to run over time. If you have a move-in date that changes at the last minute, it can lead to lots of unnecessary stress and expense. Among other things, make sure the contract is specific about what penalty is payable if the project is delayed, and what happens to your deposit if the build doesn’t happen at all, or at least within a reasonable timeframe.
- Make sure your finances are in order
One advantage to buying off the plan is that you have a longer time to save. All the same, you’ll have up-front costs such as a deposit and then finally the balance, payable on completion of the project. Talk to your broker about the timing of all of this, and ensure you have pre-approval arranged with plenty of time to spare. This pre-approval only lasts for 3 months though. If the build completion date is further into the future, you must make sure your financial circumstances remain unchanged because a new application needs to be submitted when the property is close to completion.
Your broker can also let you know whether you qualify for concessions or other grants that governments sometimes offer to owners who buy off the plan. And check online for your state office of fair trading for more information about making this type of purchase as risk free as possible.
- Warning for first home buyers
First home buyers with a limited deposit run a huge risk if the market drops even slightly while you wait for the property to be built. The bank values the property only once it is complete and goes off that for the loan, not the contract price. For example, a buyer could sign a contract agreeing to a sale price of $600k on day one then come back to finance it 2yrs later and have the valuer think it is only worth $550k. The lender uses $550k as the value and the loan is calculated as a percentage of that, not the $600k purchase price, which could result in a shortfall.
We advise purchasing off the plan is more suited to a buyer with a substantial deposit or a seasoned investor, with an already large property portfolio, who holds the equity to absorb any drops in value.
Talk to your broker
No matter whether it’s questions about contracts, the background of your builder or making sure you’re financially prepared, your broker can give you insights and advice to make the process of buying off the plan clear and simple. Contact Us today to see how we can help.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!