Buying a property off-the-plan has been a popular strategy for many years however there are a number of issues that need to be considered.

Upsides

One of the main benefits of purchasing a property off-the-plan is that you can secure a new property at today’s prices, even though it might not be ready to move into for six months or more into the future.

In a market that has bottomed out and is on the rise, the property may have increased in value once it has been completed – giving you plenty of scope for price growth. In addition, you typically don’t need to commit too much upfront in terms of finance.

Developers usually require a 10 per cent deposit to secure a property off-the-plan, with the balance payable once the property is complete. You can therefore use this period – which might range from a few months to a number of years – to save, thereby reducing the mortgage required to secure the property.

This strategy can be very effective for first home buyers seeking to minimise their mortgage commitments or possibly purchase a larger house – or one in a more desirable suburb. It can also be a sound option for those that want to live in a new home but don’t really want to handle the stress of building one themselves.

Purchasing off-the-plan can be a prudent option for investors as well, particularly those that are looking to maximise their cash flow to inject funds into other investments – be it shares, managed funds or other asset classes. Investors can also benefit from tax incentives when purchasing new properties.

Downsides

While there are numerous benefits of buying a property off-the-plan, it does come with certain pitfalls that you need to be aware of.

Most importantly, should the value of the property decrease during the period between placing your deposit and final settlement, you may struggle to secure the valuation required to secure a mortgage – leaving you out of pocket.

For this reason it’s essential to do your research on the area where you’re buying as well as its long term prospects.

For example, should there be a building surge in the area – and a subsequent oversupply of property – investors may struggle to attract tenants. It may also reduce possible rental returns.

Also, do your due diligence on the developer – there have been numerous cases where developers have run out of funds and unable to complete construction. A developer with a good track record – and even better, one that has been referred by a satisfied customer – is always worth considering.

One downside that doesn’t usually cause problems with off the plan purchases is that there can be substantial delays in settling on a property. If the purchase is for investment, this is not normally an issue but if you are waiting to move into a property, then you need to think about what a delay of ten months (as we have seen) will have on your plans.