Buying Off the Plan

Buying off-the-plan real estate is often pitched by marketers as a “win win investment” But,  how safe is buying property sight unseen?

Certainly people have made money buying real estate before it is completed. Some have on-sold their properties at a good profit before ever having to settle, but these are usually more exclusive properties close to major cities, where demand is strong.

There have also been many instances of people paying far more for an off-the-plan property at settlement than they could hope to attain in the prevailing market. Melbourne Docklands apartments, where oversupply drove down prices, are a prime example of where this happened.

Buying off the plan is undoubtedly a leap of faith and the dangers are twofold.

First you have to believe that the property you can only see on a plan will eventuate exactly as specified within a certain time. If, like most of us, you do not find it easy to envisage exactly what you will get, it’s probably worth getting help from an expert. Even if there is a display suite it may not be truly representative of the finished product.

One service you could consider is from Archicentre, the building advisory service of the Royal Australian Institute of Architects, which provides advice on plans. These reports include things like an opinion on whether the rooms are of a reasonable size, the quality of the fixtures and fittings and the layout.

When building is completed, before you fork out your money to settle, Archicentre can conduct a practical completion inspection, including checks of the area of the building against the plans, confirmation that the promised fixtures and fittings have been included, and comments on the overall standard of the building.

Each of these services start from around $400, says managing director Robert Caulfield, depending on the state and how much work is involved. Other precautions you should take include:

Only buy from developers with a good reputation and whose work you can see.

Make sure every detail is specified in the contract, including fixtures and fittings — for example, not just a stainless steel oven, but a particular brand and model.

The second major pitfall relates to price. It’s difficult to establish whether the asking price is fair when there are no benchmarks. “Buy tomorrow’s real estate at today’s prices” is the spiel of the marketers. That assumes property prices always rise, which of course is not the case. For example, if you bought a unit off the plan three years ago in Sydney’s outer west and are settling on it now, it is likely to be worth less than you are paying.

With investments be very suspicious of rental guarantees, which can be used to set artificially high prices. For example, if gross rental returns are 10 percent in an area and the vendor guarantees a $400 a week rental, that would price a property at $208,000. But say that market rent is really $350 a week, meaning it’s only worth $182,000. If you fall for this you would pay 12.5 percent above market. The vendor only has to pay $5000 to guarantee the extra rental for two years and score an extra $26,000, or $21,000 net.

Contact What If We Finance if you are considering buying off the plan before you commit to any contract.

By |2018-06-29T12:11:56+00:00June 30th, 2015|Home Loan, Mortgage Broker, Property Prices|0 Comments
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