Buying off the plan can sometimes be a daunting experience. Especially if you’re going into it blindly. There are plenty of benefits – think tax, builders guarantee, high value asset for low capital outlay.
But the challenge is that it’s a foreign property purchasing concept for many and there can be risks involved. Failed expectations, rising interest rates, or a falling property market. You also place a 5 or 10% deposit upon committing to the purchase which can be 18 to 24 moths from actual completion of the apartment. This means that you cannot guarantee that you will get finance to purchase the apartment (lend the remaining 90%) until the apartment is complete.
No lender will give you finance approval on something that is that far from completing. There is also a risk that you may have to forfeit your deposit and potential legal fees if your finance falls through.
So here’s what you need to know before you take the plunge.
Who is the team behind the Development?
Find out who the developer, architect and project manager is and ask if a builder has been appointed. Check out their credibility and research their development history.
Where does my 10% deposit go?
The 10% deposit is held by the Vendors Legal Rep in their trust account until the project is completed or when the ‘sunset period’ expires. What is the ‘sunset period’ you ask? This is the formal date set within a property contract by which a project must be completed. If the project fails to complete within this timeframe then the contract is void and buyer will have their deposit refunded.
I’m an investor – when should I get a Managing Agent?
We’d recommend appointing a Managing Agent about three months prior to the forecasted completion date. If the company you bought the apartment from has an ongoing relationship with the developer and project manager it’s advisable to appoint this company to handle it. Chat to your property manager for details.
What you see is what you’ll get…or is it?
How do you know you’ll be getting what you saw in the renders and marketing material? It definitely pays to do your research. Always go with trusted developers who have a proven track record. Find out what your rights and obligations under the contract of sale. Changes to the building plans often occur during construction. The finished complex or unit may not be the same as in the original plan. Consider any terms in the contract that may allow these changes.
Site Location makes a difference
Make sure you visit the property site and inspect the location. Other construction in the area may affect your view or the area may not be desirable.
Know what the fees and charges are
Owners corporation fees cover general admin, maintenance, insurance and other ongoing costs of a building or complex. Your developer should provide you with an estimate of your contributions. Your contract of sale should include a budget estimate which sets out your quarterly contribution.
Think about the future
When you buy your property, think of its future potential. If you end up selling later on, you’ll want your property to appeal to as many buyers as possible. For example, it would be much harder to sell a one-bedroom apartment in an area predominantly filled with families with children.
Bottom line, know your strategy! Why are you buying an apartment in that location, is it yield, capital growth, potential to live in it for retirement, tax benefits etc. You need to know your ‘why’ and not just listen to the ‘glossy brochure’.
If you want to learn more, give me a shout. You can reach me via email at firstname.lastname@example.org