Buying off the plan can be a great move if you know what you’re doing. Property growth (especially in the property bubble we’ve been seeing recently) can mean by the time the property is built, your property is already worth hundreds of thousands more before you’ve even paid for it.
Off the plan home loans are a bit trickier, though, as some banks are reticent to give you a loan in advance before the value of the property is known, or the likelihood of the project falling apart proves too much of a risk.
Typical off the plan properties require a deposit of around 10%. This will usually come in the form of a bank guarantee, but others require a deposit bond or cash.
Rising Interest Rates
Knowing what your repayments will be like is good research, but be mindful that the interest rate now might not be the interest rate when the project is complete. Have some estimates around a fluctuating interest rate to give yourself an idea of what your capabilities are like. There’s nothing worse than a surprise interest rate jump to price you out of your new property once you’ve already committed to buying it.
Depreciation claims in the first year of an off the plan investment can typically range between $8,000 and $14,000 depending on your property. If you’re settlement is 12 months or more before the development is finished, you may be eligible for a 50% capital gains tax exemption with the ATO>
Different states have different laws on stamp duty exemptions. Look to your state’s information on whether or not you can save on having to pay stamp duty on your off the plan property. Currently, Victoria, NSW and South Australia have concessions for off the plan properties for their stamp duty.
With the property not actually built, there’s always a risk that the company could go bankrupt. If the project just falls apart, you will get your deposit back. If the company goes bankrupt, there’s a serious chance you might not. Research your potential development company to see their track record to give yourself some peace of mind.
When buying off the plan, you have the added luxury of time. The mortgage doesn’t have to be organised straight away. If you’re planning on being the owner occupier, you have a much easier time in selling your place, with a fixed date in mind.
You also have the added period to save money. If it’s going to take 18 months to build, that’s an extra 18 months you get time to save towards a mortgage deposit or an offset account.