Buying off the plan – What you should know

Whether you’re gearing up to buy your first home or have an established property portfolio, buying off the plan may be a wise investment as there are some distinct advantages over purchasing an existing dwelling or building a custom home. The process will vary depending on your location, budget and developer, so it’s important to know what to expect before you sign the contract. In this article, we’ll explain what it means to buy off the plan, explore the advantages of this option, and how it works so you can confidently proceed into the market.

What does off the plan mean?

Essentially, buying off the plan refers to purchasing a property before completion. You’re investing in a building plan and design instead of an established dwelling. Usually, you will pay a 10% deposit and sign a contract upfront, with the remaining funds not needed until the building is complete. Your deposit is held in a trust fund, so incase the developer doesn’t complete, your money is safe and is returned to you from the trust fund.

What’s the difference between buying off the plan and a house & land package?

A house and land package may seem similar to an “off-the-plan” build as the end result is the same. However a house and land package typically involves two contracts; one from the developer who owns the land and the other from the builder who will build the house. You will settle the land first to become it’s owner, and the builder will start building on it. You will have a “construction loan” and be making mortgage payments on the land plus additional amounts as the house build progresses through each stage. Some developments, like Eynesbury Estate (where the land developer owns the builder), may simplify the process by combining the land and home build into one contract for an additional cost.

The advantages of buying off the plan

There are several reasons why buying off the plan continues to gain popularity among investors and first-time buyers. Whenever you build a new property, you may have some flexibility to design what you like with no worries of asbestos, rotting or sinking floors. Buying off the plan allows you to secure a property with very little deposit, giving you time to save and hopefully in a high growth area. Plus, potential cost saving benefits for first home buyers. This may mean that you’ll have more money available for upgrades or inclusions to design a home you’ll love.

Smaller deposit, costs savings and more time to save

The most alluring aspect of buying off the plan is only needing a 10% deposit, depending on the developer. You don’t have to pay the remaining property cost until after it’s finished, making it a cost-effective way to enter the property market. You only need a small amount of money to get started and have anywhere between six months to two years to save for the remaining amount plus costs.

Plus, there’s be huge cost savings by not having to pay a mortgage, rates, owners corp or other expenses during the construction phase.

Property value growth

Another advantage for people buying off the plan is that property value can appreciate even before settlement. Of course, the value growth will depend on several factors, especially the location. New estates like Eynesbury, a convenient distance from Melbourne, has a greater chance of appreciating over time because of its extensive lifestyle and amenity offerings such as the award winning golf course, sports precinct, historic buildings and hospitality quarter.

The costs savings during construction combined with capital appreciation could result in a double benefit for you.

First home buyer concessions

There are some great incentives for first-time home buyers, including, Land Transfer savings, and even special deals from banks. While the first home buyer incentives are a fantastic leg up, it only applies to new homes (such as ‘off the plan’ or ‘House and land’ properties) to a maximum value of $750K in Victoria.

What is the off-plan settlement process?

While buying off the plan is a relatively simple and uncomplicated process, there are some essential steps to know between paying the deposit and settlement. Buying off the plan can be broken up into four phases: exchange of contract and payment of deposit, construction, payment and post-settlement.

Phase one: exchange of contract and payment of deposit

Once you’ve found your perfect location and decided on your off the plan property, it’s recommended you get pre-approval from your bank or mortgage broker and have a solicitor or conveyancer review any contracts. After the fine details are agreed on and signed off, you’ll pay a deposit of usually 10%, which will be held in a trust account, so the developer can’t access it until settlement.

Phase two: construction

Building the property can be the most challenging part of buying off the plan, as it’s a waiting game to get into your new home. However, the positive is that you have more time to save for settlement day, plus the opportunity for capital appreciation in a high growth area. The construction length will vary and be influenced by a number of factors, although they’ll keep you updated along the way.

Phase three: settlement

Once the property’s completed, it’s time for your pre-settlement inspection, which is your opportunity to compare the finished property with your contract and agreed-on inclusions. The builder can arrange to have anything missing or damaged fixed before settlement. As soon as the certificate of occupancy is issued, you’ve paid the remaining money and then settled, you’ll receive the keys to start enjoying your new property.

Phase four: post-settlement

The post-settlement phase generally involves a 90-day grace period where defects are fixed for free. Depending on the dwelling type, you may also have an opportunity to express concerns at a owners corporation meeting (if applicable) and elect a committee to manage the property or building.

How do I know if this is my best choice?

No matter how you choose to build your home or invest in property, buying off the plan is always a worthwhile option to explore. If you have any questions about our house and land packages or purchasing off the plan, get in touch with the friendly team at Eynesbury today.