Buying Off-the-Plan

Understand the pros and cons of buying a new house off-the-plan with this guide to off-plan real estate from Savvy

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, updated on August 7th, 2023       

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It can be tempting to go to a display village and buy an off-the-plan new home, but it’s vital to get as much information as you possibly can and compare offers.  Fortunately, you can do that with Savvy, with our side-by-side comparison information designed to help you make the best home loan decisions possible.

What are off-the-plan homes?

Buying off-the-plan means buying a property that hasn’t yet been built.  You make the decision to purchase based on the designs and plans you are shown by the developer.  These days, some property developers are taking advantage of new technology to offer ‘Off-the-Plan 3D Tours’, using sophisticated software to show what a house will look like even though it doesn’t yet exist.  These tours can offer a walk-through option, where the buyer can use their mouse to ‘walk through’ the virtual house to get a sense of what it’ll look like when built.

What types of finance are available to buy an off-the-plan home?

When you agree to buy an off-the-plan house, you’ll typically need to pay a deposit of at least 10% of its purchase price to secure your right to buy the home when it’s been built.  How you finance this deposit will depend on whether it’s your first property, own any other property or are intending to buy as an investment.  Once your home is built, you’ll pay the remainder of the purchase price and the home will become yours.  Savvy can help you find the cheapest home loan interest rates in Australia by enabling you to compare loans and bringing you simple-to-understand loan comparison information.

Because the off-the-plan purchase process is in two stages (first payment of the deposit and, months later, the final payment), finance is slightly different for off-the-plan purchases compared to home loans for pre-existing property.  Depending on your personal circumstances, your options to finance aside from providing the conventional 10% deposit out of your savings include:

  • opting for a developer who will accept a 5% deposit if you don’t have the required savings for a 10% deposit. Whether your developer accepts this is entirely based on the funds they need to secure financing of their own to have the property built.  You’re more likely to be approved for a sub-10% deposit if your developer is funding their own project, rather than seeking funding from an external source.  You may also be required to pay Lenders Mortgage Insurance (LMI) as part of this, but this charge will only kick in after the property is built and the purchase and loan are settled.
  • securing a deposit bond from your lender, followed by a variable home loan for the remaining cost of your home. A deposit bond is a promise to pay the deposit by the settlement date provided by your lender, which some (but not all) developers will accept rather than receiving a cash deposit.  Your lender will arrange this with the developer as part of your successful home loan application.
  • taking out a personal loan to pay the deposit and a standard home loan to subsequently pay the remaining purchase price. This option means while you’re waiting for your home to be built, you’ll have to support your personal loan repayments on top of your existing expenses.
  • using your own savings to pay the deposit in cash and getting an investment property home loan to pay the remainder of the purchase price once the home is built. If you choose to take out a fixed-rate interest-only loan to buy your investment property, your loan repayments will be smaller until you’re able to sell or rent out your newly-built home.  Use Savvy’s interest-only mortgage calculator to work out how much your interest-only mortgage repayments might be.
  • using the existing equity in your home to refinance your home loan to take cash out, which you can use to pay the deposit on your off-the-plan investment property. When your home is complete, you could then apply for a standard additional home loan, or refinance again using your equity as security for an investment loan to pay the remainder owed on your new home.

What are the advantages of off-the-plan homes?

The advantages of buying an off-the-plan house or unit include:

  • the possibility of grabbing a bargain – especially if you’re one of the first buyers to sign up to buy in a new development, when prices may be low as the developer ‘tests the water’ to see what price purchasers are willing to pay
  • first or early buyers in a new off-the-plan development also get first pick of the lots – for example, the home closest to the water or the golf course, or the penthouse apartment suite which will be worth more than other apartments in the future
  • a set price contract will allow you to lock in the cost of your investment and potentially benefit from capital gain in the time between when you sign the contract and when you pay for the home once it’s built
  • you may have the opportunity to choose fixtures and customise certain features of your house so it becomes a reflection of your personal taste
  • you will have the benefit of a brand-new home either to live in or rent out, potentially without any maintenance or repair bills for a long time. This is one of the major attractions of buying apartments off-the-plan
  • if you’re an investor, there may be substantial financial benefits to be gained from buying an off-the-plan home. You will have the benefit of full depreciation of all fixtures and fittings as well as the building allowance, which can mean substantial tax savings. Talk to your accountant to get specific investment advice before signing any purchase contract
  • there may be savings to be made on stamp duty, as some states offer stamp duty concessions if you buy an off-the-plan property. In addition, if you buy the vacant land first and then pay for the house to be built, you may only have to pay stamp duty on the cost of the vacant land, rather than on the finished home, which is almost always cheaper.  You can calculate your stamp duty costs with Savvy's Stamp Duty Calculator

What are the disadvantages of buying an off-the-plan home?

  • the time gap between when you pay the deposit on your potential new home and when you pay the settlement price on your completed home, can work to your disadvantage. If construction is delayed for months or even years, this could become a costly exercise which you hadn’t planned for and cause you considerable worry
  • risks associated with either the builder or the property developer going bankrupt before your home is complete. If your builder does declare bankruptcy, you may face years of costly legal battles before you can get your deposit refunded, if at all
  • issues around building quality and ensuring you get what you believe you paid for. Promises made by developers about the quality of roads, pavements and recreational spaces in the new development may not always be realised.  You could be left with a new home sitting in an unfinished dustbowl with no roads or adequate infrastructure such as pavements, communal drainage or recreation parks provided for many years
  • lower resale value or a valuation that disappoints when you come to either sell or refinance your new home.  If you are banking on making a profit from your investment in an off-plan property, you may end up with a property worth less than the mortgage you took out to buy it, or even be unable to sell your investment if the development proves to be unpopular

More about off-the-plan homes

How long will it take for my off-the-plan property to be built?

This will depend on whether you have bought a house or an apartment.  Houses generally take between 6 months and 18 months to build, whereas if the apartment is part of a block of units, construction could take upwards of two years before the development is complete.  However, these are only rough guidelines: off-plan properties inevitably suffer construction delays, so there’s usually a clause in the building contract you’ll sign which details how unforeseen delays will be handled.

Is there government assistance for homebuyers purchasing their first off-the-plan home?

Yes – first homebuyers are offered a range of assistance measures by both state and Federal governments.  These measures range from concessions or reductions in the amount of stamp duty payable by first homebuyers to cash grants offered under the First Home Owner Grant scheme and deposit guarantees provided under the First Home Loan Deposit Scheme.

What is a depreciation schedule when buying off-the-plan apartments or property?

A depreciation schedule is a detailed list of all items which can be claimed as tax deductions in a residential property which has been purchased for investment purposes.  There are two basic sorts of depreciation – on the building itself (known as the ‘building allowance’) and on plant and equipment (which are removable items inside the building).  The schedule will list each item (for example, the dishwasher, oven, water heater, carpets or other fixed items in a new home), with purchase price and a depreciation schedule showing how much can be claimed as a write-off for that item each financial year.

Can the value of my investment change between when I sign my contract and when it is finally built?

Yes – this is because the initial price for off-plan apartments or real estate can be set low as a developer tests the market and gauges the public’s appetite to buy property in that development.  Once the majority of units and apartments are sold and available units become scarcer, a developer may increase the price of the last few remaining units.  However, the reverse can also be true, with the price of units being reduced if sales disappoint and the public reaction is more negative.

Are rental rates generally higher for real estate off-plan property?

The rent that a brand-new apartment, unit or house will bring in is generally higher than a property that’s older or in a poorer condition.  New properties can also attract premium tenants who are willing to pay a little bit more (up to 5% to 10% above other rental rates) to have a pristine living environment where everything is brand new.

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