Navigating Your Off The Plan Purchase

To Buy Or Not To Buy?

There was a time, not so long ago when buyers, mainly investors, were tripping over themselves to buy off the plan apartments. It was a phenomenally hot market and the price of property was increasing beyond wild expectation. There were also fabulous stamp duty concessions available to all who bought off the plan apartments. This made buying a very attractive proposition and sent a flurry of investors into overdrive to purchase property in this way. As time progressed the world has gone through kaleidoscopic change, there are many different schools of thought on the merits of buying off the plan apartments at this time. One school of thought is to turn your backs on OTP (off the plan) as they are too risky, especially with the cladding debacle and oversupply. Another school of thought is that buying in this manner still offers strategic advantage, you just have to know how to extract that advantage to turn it into a profitable venture.

Determining the Market

Firstly, it is imperative that as a buyer, you make it your business to learn as much as possible about the pros and cons of buying off the plan. Understand that OTP is a concept purchase. That is, there is no physical building to view, only plans and models. You are making an investment in the ‘promise’ of an apartment yet to materialise. As such, you place yourself in a position of relative strength. The vendor wants to sell you what is perceived to be one of the greatest advantages of OTP; the ‘promise’ of time. This can be a good thing depending on the market. Should the building take a year or three years to construct, you can leverage that time to save your funds and thus borrow less and also capitalise on market growth and ask for incentives from the developer. Effectively, it comes down to how well you can read the market. Is it a buyers’ market or a sellers’ market? Determining this can put you in a clear position, hopefully one of great advantage. Note well, time does not always promise capital growth; you are making an investment and like all investments there is a side serving of risk. Sometimes offering a great return, other times, not so great. In the case of the latter, this can be problematic if the valuation does not come in at settlement. In a rising market it will not be a problem but in a retreating market you will need to cover the shortfall of the valuation and settlement price so be prepared. If you fall into the latter, sellers’ market, then the advantage rests with the developer. In other words, there are more people interested in the same property.

Buyers’ Market

In a buyers’ market, the advantage rests with the buyer, so take advantage of this time and don’t simply accept what the glossy marketing material wants to sell you. Ask the developer what more he or she can offer you to get you over the line. Perhaps there is an incentive to pay for body corporate fees or upgrades. You might be surprised what is available to those who ask. I believe that there is currently a window of great opportunity for buyers. The pandemic has wrought a swag of consequence on all facets of society, however, if you are in the enviable position of being employed and well able to secure a loan then the field is clear for you to sprint into action. The pool of buyers has contracted; many having lost their jobs and developers would welcome interest in their stock. It may be very wise to use this time to your advantage.

Deposits

It is often the case that there is at least a year or more to wait for the building completion of an OTP. This means that you have to part with your ten percent deposit for that amount of time rather than investing it and making it work for you during this interval. The solution to this is a deposit bond. This is a particular instrument that allows you to pay a fraction of what you might pay in deposit, to a deposit bond company, they, in turn, offer the developer a guarantee on your deposit. There are a few companies that offer these bonds and if the developer accepts this, then you may pay a fee of a few hundred dollars and in return the bond company guarantees your deposit. You need to demonstrate that you have the deposit and if in the event you cannot pay at the designated time of settlement, the bond company pays on your behalf and then will sue you to recover the money. You need to approach this judiciously, as with everything related to buying property.

Stamp Duty Savings

A few years ago, the government changed that rule so that you can only attain a concessional stamp duty rate if it is your primary place of residence. Bleak news for investors, good news for first or second home buyers. This is definitely an attractive incentive saving you thousands.

The Checklist

Navigating your way through the labyrinth of purchasing OTP does not have to be a traumatic experience. It can be ultra rewarding and a big step into homeownership. 

Have your checklist ready: 

• Deposit/deposit bond
• Establishing if it will be your primary place of residence or an investment opportunity
• Incentives offered by developers (remember to ask)
• Guarantees on cladding (very important in this day and age. Some developers are including this in their marketing material. If you don’t get a guarantee in writing, walk away).
• How much time will it give you to save for a larger deposit (check completion date)
• Consider buying in the outer suburbs. There is a lot of growth and less expensive
• Consider buying with a co-buddy to halve your expenses and get into the market earlier (Imperative that you have a co-ownership agreement in place. Don’t enter into this structure unless you are legally protected.)
• Understand the market: buyers or sellers
• Conduct due diligence: is it overpriced, under-priced, well priced. Where does it sit with the median price for the area? Your valuation will depend on it!

Never rush your purchase. Always take time to conduct your due diligence so that you can enjoy the reward of a considered decision and security that home ownership can offer.