Guide to buying a home off the plan in Australia

Buying a home off the plan in Australia is a leap of faith because you are purchasing a property on paper. Your home buying decision is based on floor plans and designs, rather than inspecting a physical layout in person and picturing yourself in the space.

While there’s certainly risks to be wary of, it can also have a number of advantages, including additional time saved, potential stamp duty savings and the fact that you're purchasing a brand new property.

Buying a property off the plan means you agree to buy a home that hasn’t yet been built. Without being able to do a walk through, it’s clear that entering a contract of sale for an off the plan property means you need to consider pros and cons carefully and tick off some considerations.

“Buying off the plan can be an attractive proposition because the property usually represents great value in the current market,” said licensed real estate agent Aiden Wilcox of Harcourts Northern Rivers.

You agree on a purchase price today but, hopefully, the value of the home has increased by the time of completion. Naturally that depends on whether the market goes up, not down. If it’s in decline, home buyers and investors can end up with a property that’s worth less after it’s built than what they paid for it.

However, because developers need to satisfy a number of pre-sales to finance the project, the purchase price may be less compared with an established property, Mr Wilcox said.

Other benefits can include:

• Lower get-in costs. Generally you’ll be up for the deposit paid to the developer – between 5 per cent and 20 per cent – but you won’t have to pay the remaining balance until the home is built. That gives home buyers more time to save.
• If you are an investor, not an owner occupier, you may get greater tax depreciation on a new property. It’s worthwhile speaking with your accountant to better understand eligibility and to estimate the value of any potential deductions.
• Buying off the plan often allows you freedom to customise some details including floor plans and finishes.

• Depending on which State or Territory you buy in, you should be covered by builder’s warranty or insurance which means certain faults must be repaired by the builder. Home warranty insurance, issued to the developer or homeowner, can also cover you if the builder dies, disappears or becomes insolvent before completing your home.
• In some States and Territories you may be able to claim exemptions or concessions on stamp duty. For example, if you buy a home off the plan in NSW and intend to use it as your main residence, you may be able to defer stamp duty for up to 12 months after you sign the agreement, or until the property is completed or handed over — whichever comes first.

When buying off the plan, you’re entering into a contract of sale without final unconditional finance approval, although, hopefully, you’ve obtained pre-approval. If your financial position changes for the worse, you may be in trouble later.

Some other risks of off the plan purchases include:

• A long wait to move into your dream home. Make sure you are happy with the proposed completion date in the contract and consider what position you would be in if timelines stretched out, particularly when developers are operating in a market subject to significant delays due to supply or trade shortages.
• Your expectations may not be met. What you imagine and what you end up with may not be the same.
• Your financing options could be impacted by changes in interest rates or property values. If, for example, the value of the home is less than you expected at the time of completion, your bank may not want to lend you as much money and you may have to make up the difference.
• A range of clauses in the contract of sale that normally don’t appear in contracts for existing dwellings. It’s worth considering legal advice on contracts to ensure you understand the implications. Imagine if the builder or developer changed the building design, final purchase price or completion date without your consent.
• Devaluation of your property could occur if a sudden glut of other developments commences in the same neighbourhood. Once one development starts, other developers may move in, causing an over-supply of similar properties in the area. This could lead to difficulties with finance due to bank valuations.
• Changes to interest rates could impact the cost of your home loan by the time settlement comes along. Make sure you budget for possible interest rate increases that occur before settlement so you're well prepared.

Some states and territories may provide special concessional stamp duty rates for eligible buyers making off the plan purchases, while others will apply the same stamp duty rate as established homes.

Each state and territory in Australia will charge stamp duty differently for off the plan purchases. While not specifically a concession, in many cases if a buyer signs the contract of sale before construction has started, stamp duty can apply only to the land value, not the finished product. Check out how stamp duty is applied, including concessions that may apply to eligible buyers, for buying off the plan with your relevant state revenue office. The links below could help get you started.

• SA
• VIC
• WA
• NT
• TAS
• NSW
• Queensland

• How experienced the builder is. Look at their track record, build quality and speed and ask to see other houses or units they have constructed.
• Whether you can make changes to the finishes or fixtures used.
• Deposit requirements. Some developers may ask for a bank guarantee, while others may allow you to use a deposit bond or cash deposit.
• The ‘sunset clause’ in the contract of sale that puts a time limit on the contract's validity and legally allows both parties to walk away. In such a case, a home buyer should get their deposit back in full, but may be impacted negatively if property prices have risen to above their borrowing power.
• Whether there are separate contracts for the purchase of the land and construction of the home. You may want your legal adviser to see both.
• Ongoing costs, for example, strata levies (body corporate fees), or additional fees or penalties if there are delays to building start dates.
• Whether you can you visit the site during construction to inspect work.
• If you can resell the property before it’s completed.
• Any other developments in the same area that may affect your property. Contact the local council and they may be able to assist you with this research.

Buying off the plan may be a suitable move for you as a home buyer or investor. However it’s important to do your research, taking into account pros and cons. It can also be worth seeking out reliable legal and financial advice where you need it.