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how property investors benefit from buying off-the-plan

Buying off-the-plan and brand-new property can provide you with a number of advantages. Whether you are an owner-occupier or investor the benefits can be substantial.

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What does buying off-the-plan really mean?

Buying off-the-plan essentially means that you are entering into a contract to purchase a property prior to, or during the construction phase of the development. Hence the phrase buying off-the-plan, as there is no finished product for you to inspect. Because you can't actually see the finished product the contract is a more complex document, in other words there will be many more pages detailing what is actually going to be built and how it is going to be built. This is obviously for your protection.

There are some good reasons why you may consider buying off-the-plan. It’s possible of course that all of these reasons may not apply to your individual situation, but nonetheless these are some of the major reasons.

1. A better price

We all like to save money. When developers first offer their new products to the market they usually start with lower prices to encourage a faster sales rate.

When construction commences, and the developer has met their construction finance requirements, prices usually rise. Therefore, for investors who commit early to the project there is often a good price incentive.

2. Tax benefits

As with all investment property purchases there are some significant tax benefits available. These benefits are greater when property is newer because there are more tax depreciations available. Those benefits are greatest when the property is brand new so buying off-the-plan maximises your available tax deductions.

The Which Property end-of-financial-year strategy goes into more detail about how the high-income earner can take full advantage of these benefits in any given financial year. Please see our website for the full strategy.

3. Secure property at today's price

When buying off-the-plan, an investor can secure property at today’s price yet often not have to settle for up to 18 months or in some cases even longer.

What this means is that while you’ll pay a 10% deposit upon signing a contract, you don’t have to pay the balance of the money until the property is complete. In the meantime, especially in a rising market, you can enjoy the benefit of any capital growth that occurs on the property. Of course if prices were to fall, which has rarely happened in most areas of Australia, and certainly not for long periods of time, you have to wear that risk.

Property is a long term investment. Providing you are buying with the intention of holding long term, buying off-the-plan works well for most investors.

4. Stamp duty savings

If you are buying off-the-plan property in Victoria there are substantial stamp duty savings available. The Victorian Government in an attempt to encourage new development has reduced stamp duty if you purchase before the property is built. As construction of the development occurs the rate of stamp duty increases until the building is complete and the full rate of the stamp duty applies. The concession is always greatest if the property is bought before construction commences.

5. Time

If you’re an owner occupier purchasing off-the-plan, you instantly have the added advantage of ‘putting things in order’ before you move in. Co-ordinating the sale of an existing property can be stressful, but knowing that you have some time before your new property is ready to occupy provides you with valuable time to plan for your move and can reduce your stress considerably.

6. Ability to save

If you buy property during the planning stages, or early on in construction, the extra time before settlement can be used to save money.

While the deposit needs to be paid when the contract is signed, the balance of the purchase price does not have to be paid until construction is complete. This means you don’t actually need your bank finance until settlement. Since construction can take 18 months or more, it’s easier to build a substantial nest-egg over time that can be used to help reduce your mortgage.

7. Greater choice

One of the greatest benefits of buying off-the-plan is that you get to choose your property from everything that is available in the development. Normally you don’t have that opportunity. If you are quick off the mark the selection is even greater.

A wider array of choice means a greater opportunity to make sure you purchase an apartment with a superior position, aspect and floor layout. It’s quite common for example, for penthouses, corner units, those with the best views and ground-floor apartments with private gardens to be sold first. This in turn, can offer better potential for strong capital growth and maximise rental yields.

The dangers of buying off-the-plan

Just as with all forms of investing, buying off-the-plan does have some dangers. In particular, at Which Property, we emphasise that close attention to floorplan design can prove the difference between an apartment that has tenants queuing to move in (and never wanting to move out), and one that fails to keep tenants interested. A well designed property will always outperform a poorly designed property.

The designs of many apartments fail to meet good design guidelines and the lifestyle requirements of modern households.

As a guide to the overall size of an apartment, one-bedroom properties should be no less than 52 or 53m² internally plus a balcony space of at least 10m². Our preference however is for one-bedroom apartments which are upwards of 55m² internally, plus balcony for a total space of 65 to 75m².

As a general rule, two-bedroom apartments should be no less than 75m² internally plus 10m² of balcony, but 85m² internally is a much more appropriate living space.

Three-bedroom apartments should be no less than 100m² internally but once again 110m² is much more appropriate.

Not withstanding this guide for overall size a larger property is obviously better than a smaller one, but will of course cost more. Regardless of this, a smaller well designed property will often outperform a larger poorly designed property.

Buying off-the-plan, provides the smart owner occupier or investor with substantial benefits. Buying off-the-plan can seem daunting when you can’t physically touch the end product. There are dangers such as buying a property with a poor floorplan or in a noisy location but rest assured that all of the properties that Which Property endorse are rated and not offered to our database unless they meet our strict criteria. As is always the case you can avoid the major pitfalls by thoroughly reviewing the property selection criteria and conducting some research.

DISCLAIMER: Whilst the publisher and author believe that the information contained in the publication is based on reliable and researched information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. Anyone who intends to use the information as the basis for making financial or business decisions should first obtain advice from a qualified professional person. This article is published on the understanding that neither the publisher nor the author - is responsible for the results of any action taken on the basis of the information published; and is not engaged in rendering legal, accounting, professional or other advice or services. The publisher and author expressly disclaim all liability and responsibility to any reader of this publication as a consequence of anything done, or not done, by a reader relying upon any part of this publication. (C) This article may not be reproduced in full or in part without the specific written consent of Which Property? and the Author.

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