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Tips and traps to buying off the plan

Off the plan (OTP) is simply signing a contract for a property that is yet to be built. The design of the property in the form of building plans can be observed however the physical property cannot. There are many factors when determining if purchasing OTP property fits your current needs and future plans.

Advantages

  • The most obvious benefit of buying OTP is the exciting feeling that you will be living in a brand-new property. New furnishings, fixtures, fresh paint and the excitement that no one else has lived in the space prior is a winner for some buyers
  • Locking in a price before the completion of the build is an advantage in some instances. If the area you have purchased in goes up in value during the 1-2 year build is complete, you can have equity within your property before you move in
  • The smaller earlier commitment is a clear benefit when purchasing this form of property as you do not need to take out a loan until the development has been completed. An initial deposit is required however this gives you time to save additional funds during the build.
  • Stamp duty and concession advantages may apply with particular buyers should you be a first-home-buyer and/or you are purchasing under a particular price. For more information then visit the State Revenue Office of Victoria.

Risks 

  • Inflated purchase prices are a big risk with OTP property with the notion that most developers are taking in the consideration the potential growth of the property and then factoring that into the sale price. The excitement or hope that purchasing a property before it is built and then banking on it growing in value may not always be the case. You must factor in the possibility that there is always potential for the market to fall over the course of the build and the risk that you could have over-paid for the property.
  • Over supply leading to a poor valuation is a genuine financial risk when you have a large amount of competition in the area. Being aware that price is a function of demand and supply is critical to ensure your property is not at risk. This can cause an issue with the value of your property particularly in larger blocks where there is competition of 50 or 100 other properties in the same boat.
  • Obtaining the finance is done within 1-3 months of completion of the build. At the time you need to apply for the loan, if your financial position does not allow you to obtain the loan, you will miss settlement and most likely forgo your 10% deposit already paid. Ensuring you are in a position to obtain a loan is critical and planning ahead with the help of a broker will ensure no hiccups at the lending stage.
  • Development bankruptcy is a rare but real risk when purchasing OTP property. You must ensure you are aware of all options should the developers go into liquidation.

Taking the time and weighing up the advantages and risks of purchasing OTP property is essential to see if this property type fits your needs and future goals. A sound understanding of the terms and conditions, recognising any economic changes or growth risk in the area and being fully aware of the developer is critical before signing on the dotted line.

 

 

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