Six risks that come with buying off the plan

Buying off the plan, or buying “new”, can be incredibly exciting for home buyers of any level of experience. For first time buyers, it can also be daunting.

While there are many positives associated with Buying off the plan, and it can be useful to get in early and lock in a price prior to the property being purchased, there are a number of risks to be aware of.

Firstly, if you’re interested in purchasing off the plan you can read our How To series about going through the buying process.

Here are the risks that you need to have on your radar.

You may not be satisfied with the end product

You can look at as many renders, artists impressions, show homes and samples as you like, but nothing quite compares to seeing the actual property in the flesh. Similarly, unless your contract is very specific and you get it looked over, you may see variance in the quality or brands of your finishes, fixtures and appliances. Make sure these elements are specifically stated in the contract.

The market may fall while the property is being built

If the market drops during the development’s construction phase, you may face yourself needing to foot a bill that’s more than the bank will lend to you if the valuation comes in lower at settlement. This can pose significant difficulties to those without substantial funds behind them, and can push your finances backwards. On the other hand, the market could increase over this time. You will want to make sure that any market increases haven’t been factored in to the price already – don’t be paying tomorrow’s prices unless it is already tomorrow.

Rental forecasts and guarantees may be off the mark

Just as the sales market can drop, the rental market can fluctuate as well. This may leave your rental yield flagging, or your property vacant, if you haven’t considered where the rental demand is heading. Similarly, those guarantees provided by unscrupulous developers can often come unstuck. Perhaps they require you to stick with their selected property management company or jump through another set of hoops. Know what terms are behind this guarantee ahead of time.

The area becomes oversupplied with other off the plan developments

Developments have a habit of cropping up together. If you’re buying into an area with lots of developer interest and property demand, you’ll want to make sure that by completion the area won’t be oversupplied or facing a potential future oversupply.

The developer may go bust or there may be delays

Make sure you do your research on the developer and other professionals involved in creating your property prior to purchasing. While some delays are unavoidable, and you should prepare for them, such as weather-related delays, others can be caused by poor planning from developers. If it spans out by a significant period of time, you could face your funds being tied up elsewhere, costing you time and other opportunities. If it’s a home, then you may need to seek out other accommodation in the event of a delay. Some developers can even go bankrupt, leaving you in the lurch.

Rates increasing before you can fix

In the current low interest rate environment it’s unsurprising that many are interested in fixing their loans to take advantage of the low repayments required. However, if you’re Buying off the plan now then you won’t be taking the loan out until further down the track – this means that you’ll be facing the interest rates then. With all the predictions at the moment, it’s likely the rate may be higher by the end of next year.

However, with the right research and careful decision making, off the plan properties can present good buying for some investors and home buyers.

Here are five tips to protect yourself when purchasing off the plan.