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The lure of buying off the plan can be tempting for first homebuyers. On the surface, it seems like a great idea with minimal upfront costs and a shiny new apartment – what’s not to love?
Advantages of buying off the plan can include:
A high value asset for a low capital outlay
Generally you only need a deposit of around 10% to secure an off the plan apartment. This structure gives buyers ample opportunity (often a couple of years) to get their finances order.
First homebuyers grant
Here in Victoria the first homebuyers grant is only available on off the plan properties. In some cases, the $10,000 grant can provide the entire upfront deposit needed to secure the property.
If the market experiences growth between the time you lay down your deposit and the time the building is complete, you will still only pay the original price you agreed on at the very beginning of the deal.
While the above points can make off the plan buying seem like a pretty good idea, generally speaking, buying off the plan should be approached with caution.
Here are some commonly experienced downsides of buying off the plan:
You don’t know 100% what it’s going to be like once it’s built
A rendered image might look great, but it could be a long way from what the actual apartment is going to look like once it’s built. Many buyers are left disappointed with the finished product.
A drawn out settlement
Sometimes building can be delayed which is extremely frustrating for the buyer and costly if you have made plans around a promised move-in date.
Expected financing may become unavailable
Even though a bank may preapprove a loan at the time you lay down your deposit, preapproval is not an absolute guarantee that the bank will give you the loan when the property is complete. Depending on market movements the valuation of the property may change at the time of settlement and the bank may not be willing to lend the same amount.
If you live in Melbourne…
As you may have already heard, here in Melbourne real estate experts are predicting an oversupply of high-rise apartments to come about as early as next year. For this reason, it could be a good idea to steer away from off the plan purchases in Melbourne for the time being. That being said, this predicted oversupply is already causing prices of already built or existing apartments to drop, so if you’re prepared to hold on to your investment for some time, this could be an opportunity to pick up an inner city apartment at a bargain price.