Everything you need to know about purchasing the plan

Many buyers, whether they are buying for themselves or for an investment, have their vision of a perfect property. Whether they intend to live there forever or rent it out term, there is something very rewarding in buying a property with a final listing.

With established properties, you generally adhere to someone else's idea. Even if you're renovating, you're working with bare bones that weren't yours and you have to adapt your concepts to those of others.

New construction, on the other hand, allows you complete creative freedom with ownership, but also subjects you to the countless headaches of the process, from field research to the hiring of good architects and builders, to the management of several parties and to the guarantee of the project is progressing.

Why buy the plan?

Purchasing the plan is the process of purchasing a property from a developer before it is built. Although it is usually associated with the purchase of apartments, you can purchase any type of property on the plan, including houses and townhouses. Since there is no concrete property yet, you will make your decision based on the architect's plans, conceptual art, stylized sampling units and history of the building. developer.

The fact that the property is still at the concept stage gives you more space to make creative suggestions. However, it can also mean that, for one reason or another, the property never takes this step.

Here are some reasons why an off-plan investment might seem logical to you:

1. You have the last word

Buyers of off-plan properties are generally offered the opportunity to comment on existing plans and request reasonable adjustments.

"When it comes to houses, the main advantage of buying the plan is that you can be involved in the design of the floor plan and make sure that it exactly matches what whatever you want, whether you're an owner-occupier or an investor, "said Cam McLellan, director of OpenCorp.

2. You can save on stamp costs

This is considered by property buyers to be one of the biggest benefits of buying the plan, as some local governments are offering discounts on new properties, adds McLellan.

"In many cases, with regard to houses, you only pay stamp duty on the land if you build a house on the land after the land is installed," he explains.

In other words, you only pay the stamp on the value of the land, which is much less than the amount that would be payable on a complete house. However, you must cover the interest during construction during the construction of the house.

"Compare that to a situation where the builder must first acquire the land, pay stamp duty to the developer, and then cover the interest during construction themselves," says McLellan. “This requires you to pay a premium for a completely new house, and then also pay stamp duty on that price.”

3. You don't have to settle down right away

At the time of purchase, unplanned buyers generally only need to settle a down payment – usually 10% of the purchase price – as the project is still in progress . The full balance should only be paid when construction is complete, which gives you enough time to gather your finances.

4. You could capitalize early on a rising market

If market trends favor you, you could set up a property in a warm place by the time construction is complete, and its value could be much higher than what you paid for it. "In today's market, this is a good time to buy off-plan homes, provided you can restrict the amount of land available in the area in which you buy. Houses have the content of the land, which is the engine of growth capital, “advises McLellan.

Considerations when purchasing the plan

Despite these advantages, purchasing the plan can still be a risky prospect. The biggest bet is that it's basically like buying an invisible sight – something new doesn't necessarily mean better, and you might find that you invested your money in a poorly constructed project at the end of the day.

"The recent cases in Sydney and Melbourne have been absolutely heartbreaking," says Danny Andrews, owner and director of boutique apartment developer Andrews Projects.

"What these cases really brought to light is the need to deal with experienced developers who work with experienced manufacturers. We have seen a recent series of projects go through false starts, which is not only devastating for affected buyers, but frustrating for quality developers like us. The people who buy the plan need to do their research and ask the right questions: when does construction start? Has a builder been appointed? Has a construction contract been signed? "

Buyers of off-plan properties should also be aware that they can get into a final product that looks very much like how it was conceptualized.

Losing your deposit is also a potential scenario, if development does not materialize for any reason – like the developer or builder who runs away, presale quotas not met, or run out ; there were not enough funds to complete the project.

"What if the developer or the manufacturer breaks down?" You paid your deposit, they used that money and you don't get it back, "says McLellan."

"In addition, if the loan rules change between the signing of contracts and the time when financing is required upon completion, your deposit is in danger if you can no longer meet the terms of the contract and make approve funding. "

You must protect yourself legally by asking a lawyer to carefully review the contract. The sales contract for off-plan property is usually longer than the typical sales contract due to additional clauses, so make sure you understand all of the conditions before signing.

In a scam that recently made the headlines, the developers exercised the "sunset clause" in the typical sales contract in order to cancel off-plan sales and resell at a price higher.

"A law is being passed to change that, but, in fact, a sunset clause is a period from the signing of the contract that gives the buyer, but more generally to the seller, the right to be able to cancel it. contract, "says McLellan.

This aimed to protect the parties against payment delays and to allow the recovery of deposits in the event that a development did not materialize. However, shady developers took advantage of the clause by dragging the construction process past the deadline in order to take advantage of rising market conditions in Sydney and Melbourne in recent years.

Buying the plan therefore requires rigorous research into the developer's background, because you want to make sure that they have the ability to carry out quality projects – and without trying to rip you off. on the road.

"This is a good time to buy off-plan houses, provided that you can limit the amount of land available in the region in which you are buying"

CASE STUDY: LEE HALLETT

A man who chose to get started in real estate investing by purchasing the plan is Lee Hallett, general sales manager of the Porsche Center Sydney.

"I had built and sold a few houses – I knew that property was a good way to make capital gains. And I have two young children that I want to be able to invest in property one day, "he says.

Hallett also wanted to spend less than $ 500,000 on his first investment property. He did his shopping in Brisbane and Melbourne, as well as parts of Sydney, but couldn't find anything that appealed to him until he met the development of The Paper Mill in Liverpool, NSW.

"I knew the area because I lived in Moorebank for a while. I knew Badgery’s Creek and the other infrastructure projects. I also did my research on the builder, so I knew of another development they had done in Liverpool before, which was of good quality. "

The price of $ 445,000 also suited Hallett's budget, and therefore in 2015, he signed up to buy a one-bedroom apartment. This decision was not without risks, however.

"The suite they exposed was a two bedroom apartment; we had a one bedroom apartment with a desk, so it was hard to get an idea of ??the size, "he explains.

"It was a risk on our side because we did not know the size of the apartment. We just knew what the finishes would look like."

Nevertheless, Hallett's experience in building houses helped to allay his concerns.

"We had already built a few houses before, so it was quite easy to examine the plan and determine how things were going to go."

An experienced broker who had worked with Hallett at his primary place of residence helped him get the funds he needed to settle the project, and by the time he got settled he was happy to see that it had generated considerable gains.

"I realized a capital gain of more than 10%. It depends on the time you buy and the way the real estate market evolves, so I probably lost some of these 10 % now. But when it moved in, the property was certainly worth more than what I had paid for! "

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