A guide to buying off the plan

What is buying off the plan?

Buying off the plan means buying property that hasn’t been built yet or is still under construction. You’re essentially buying property based on the blueprints, plans or a display home, instead of a finished product. You pay a deposit when signing the contract of sale (securing your spot), and take ownership once construction is complete and you’ve paid the balance at settlement. Buying off the plan is fairly common in new developments, particularly for apartments and town houses, offering you the option to secure a brand-new home before it even exists.

Pros of buying off the plan

• Stamp duty savings: In certain states or regions, if you’re a first home buyer, you may be able to access concessions or claim exemptions on stamp duty. Stamp duty is calculated based on the dutiable value of the property. Since the property hasn't been built yet, the dutiable value is the sale price (contract price) minus the cost of construction on or after the contract date. For instance, if the sale price of an off the plan apartment is $650,000 and the cost of construction is $400,000, you’ll pay stamp duty on $250,000 ($650,000 - $400,000). This may lead to better stamp duty savings compared to if you were entering a contract of sale for an established property. Use the stamp duty calculator to find out how much you may need to pay.
• Time to save: With off the plan homes, you typically need 5%-10% of the property price to put down as a deposit upfront. The remaining balance is only due once the house construction is complete, giving you extra time to save before settlement.
• Tax depreciation: If you’re an investor, you can maximise your tax deductions from day one, compared to older properties where some depreciation benefits may already have been used up. This can lead to significant savings.
• Potential for capital growth: Buying off the plan allows you to pay current market value for the property, even though the property is only settled after construction, after a period of time. In a rising market, this generally allows the value of the property to appreciate, meaning, you will end up moving into a home that’s more than the amount you paid for it.

Disadvantages of buying off the plan

• Market risks and financing challenges: If the market crashes or dips or interest rates rise between the time you agree to buy and actually purchase your home, or your financial position changes, it can have an impact on your ability to service the loan. Lenders are likely to reassess your loan closer to completion, and it’s imperative that you can prove your financial stability for an unconditional approval.
• Delays in building: Construction timelines can stretch, leaving you waiting longer than expected. This can be caused by a number of things, such as weather, labour shortages or supply chain issues, and can create complications, particularly if you’re renting or planning a move. On the off chance, that the development doesn’t go ahead, you should get your deposit back. It just means though that deposit you paid the developer will not have earned you any interest in that time.
• Limited inspection options: You won’t see the final build until it’s completed. You’ll instead rely on floor plans, artist impressions or display suites. Without seeing the actual property, it can be harder to assess the quality of materials and finishes, the true size and layout of rooms, natural lighting and any construction defects. The uncertainty can lead to disappointment if the final build doesn’t match expectations.

How to buy off the plan

Step 1: Do your research

Here are some questions to ask when you’re thinking about buying off the plan: 

• Has the developer delivered their past projects on time and to a high standard? 
• Are there prospects for economic and infrastructural growth in the location you’re considering? 
• What amenities are located nearby?
• What are the project plans and potential costs? For example, if you’re thinking of buying an apartment in a complex with a lot of facilities, your strata fees are likely to be higher.

With an off the plan purchase, often it can take from 12 to 18 months or longer, before you can move in. That’s why it’s also worth reviewing your finances early and making sure you can hold out that long.

Step 2: Speak to your lender

Banks can have different policies when it comes to off the plan purchases. That’s why it’s worth involving your mortgage broker or lender early in your buying journey to get an understanding of what these policies are and how you can best prepare to apply for your home loan, including saving a deposit.

During this time, you can also research and discuss with your lender the type of home loan best suited to your needs.

Step 3: Inspect the plans

Always ask for detailed blueprints, floorplans, and a list of finishes, and check to see if the promised inclusions match what’s being advertised. It’s also worth visiting a display home, if available.

Step 4: Review and understand the contract

Off the plan contracts may be complex to navigate on your own, and it’s always a good idea to seek the advice of a solicitor or conveyancer to ensure you understand the terms. Some key things to check include timelines, clauses for design changes, as well as your rights in case the project is delayed or doesn’t go ahead.

Step 5: Sign the contract

When you sign the sale contract, you’re required to pay 5%-10% of the property price as a deposit to the developer, which locks in the purchase price and secures your spot. The remaining amount is only due at settlement. Generally speaking, buyers are advised to approach their bank for a home loan, roughly three monthly before settlement.

Step 6: Understand valuation risks

Due to the length of time involved, markets can fluctuate impacting your property value and subsequent loan approval. It’s worth having a financial buffer in the event of a property value decline.

Step 7: Prepare for settlement

Once construction is complete, your home loan approved, and pre-settlement inspections out of the way, settlement will take place. Settlement is when your lender (if using a loan), finalises the financing and releases the funds. Once a full payment is made, you receive keys and the ownership transfers to you. You may also need to budget for extra upfront costs like legal fees, inspections, and stamp duty. By staying financially prepared and understanding every step of the journey, you’ll be better prepared to buy off the plan, making it a smoother experience overall.

Buying off the plan vs. buying an established home

Compared to an off the plan purchase, buying an established property means:

• It’s a home you can immediately move into, depending on the terms of your settlement. 
• You have the opportunity to physically inspect it before you buy it and ensure there are no surprises post-settlement. 
• You have more room to negotiate purchase price or request repairs if needed.

How to choose

Ultimately, your decision to buy an off the plan home comes down to your timeline, budget, preferences and your overall risk tolerance. There’s no one-size-fits-all approach, rather the key is to educate yourself, understand both the risks and rewards, get professional advice and then make a decision aligned with your financial and lifestyle goals.