When we were trying to buy a house two years ago we briefly considered ‘buying off the plan’. However we really wanted to find something and move in straight away so didn’t look into it in much detail. Famous last words as it took 6 months for us to find something to buy anyway but that is a story for another blog post. Ever since we bought our place I have had my ear pricked for real estate chat (you kind of get addicted) and more and more I am hearing about people buying off the plan to secure their first home. It is not a surprising fact considering the ACT Government is commited to the creation of numerous new suburbs. As more new suburbs emerge it is an option that more and more people will turn to when buying a house. So if you are considering buying off the plan what do you need to know? I sat down with financial planner, Michael Miller from MLC Advice Canberra to find out the pros and cons.
What does it mean to ‘buy off the plan’?
Buying off the plan is when you sign a contract to purchase a property that hasn’t been built yet. New apartment constructions are often sold this way and you can usually review building plans, layouts, and a list of the types of fixtures and fittings you can expect in the home your purchase.
What are the benefits of buying off the plan?
When you buy off the plan you are agreeing on a price from the beginning, so if the market price rises between the time you sign the contract and the property is finished you get the benefit of having secured the price earlier.
What can go wrong when buying off the plan?
There’s no guarantee that market prices will go up in the time it takes for the property to be built! If the market price has gone down, you’re still locked into the price you originally agreed.
Buying off the plan is popular with first home buyers where sometimes deposits are low and resources are stretched. We have recently seen a number of borrowers commit to a purchase, and now that it has come time to settle they have found that lenders have tightened their requirements for loans such as requiring a higher deposit, or not counting the full rental income when looking at their ability to make interest payments. This means that the buyer risks not being able to complete their contract and forfeiting their deposit.
How can people make sure that buying off the plan is the right choice for them?
Talk to a good mortgage broker before you sign a contract, they’ll be able to help you understand the current lending market and also bring a bit of experience to what long term trends look like. Also consider looking at other properties that the builder and developer have completed in the past to get an indication of the quality of their work.
This post was written in partnership with MLC Advice Canberra.
If you liked this post you might enjoy ‘My first experience visiting a financial planner‘.