Purchasing an off the plan property is an attractive avenue for many home buyers in Victoria. If you’re interested in buying through this type of purchase, then this blog is for you! Here, we will outline the benefits, risks and things to consider when exploring off the plan purchases. We’ll also outline the key role that a conveyancer plays during the process.
But first, what does it mean to buy off the plan? Well, off the plan purchases allow buyers to secure a property at the current contract price before the home is built. This gives you the benefit of potentially gaining capital growth as the market value increases during the construction period. Keen to learn more? Let’s explore what goes into buying an off the plan home and how a conveyancer can aid in the navigation of off the plan contracts.
Off-the-plan Benefits
1. Stamp Duty Concessions and Exemptions
The potential to save on stamp duty is possibly the most significant advantage of buying off the plan. The Victorian government offers stamp duty concessions and exemptions for certain purchases, especially for first home buyers or people planning to use the property as a principal place of residence (PPOR). The amount of duty concession depends on the contract price and dutiable value of the property at the time of purchase. By doing this, you could actually save significantly by paying land transfer duty on the land transfer or contract price rather than the completed market value.
2. Capital Growth
By buying off the plan, buyers can lock in the purchase price at today’s market value, even though the property will be completed in the future. During the period of construction, the value of your property may change, in most cases, rising due to growing market conditions and applicable concessions. This allows you to gain some significant capital growth. Given that the market conditions are looking good, the property value can increase by the time that the property is completed – providing a very good return on investment!
3. New and Customisable Properties
When you buy off the plan, you’re often allowed more input on the building plans, including the floor plan. This means you can customise your future home or investment property to your specific preferences. Many off the plan properties come with modern features and fixtures, meaning a brand-new, low-maintenance home.
4. Financial Planning and Flexibility
Most off the plan purchases will involve an upfront cash deposit with the remainder paid off at settlement, meaning you have more time to plan your financial position and secure a home loan. In contrast, purchasing an established property often requires a larger initial deposit and a quicker loan approval process. With a settlement date not listed until months or even years in the future, you get more time to manage your financial situation prior to making that final payment.
5. Tax Benefits for Investors
If you’re interested in purchasing for investment purposes, buying off the plan may result in some tax benefits. Through this option, investors have the potential to claim depreciation on new assets, in turn reducing their overall taxable income.
Risks of Buying Off-the-Plan
1. Construction Delays
Construction delays can be one of the major risks associated with off the plan contracts. Regardless of developer created estimated settlement dates, buyers can be left waiting longer for their new property to be built when delays in the building works occur. This delay could affect your financial situation, especially if interest rates or market conditions change unfavourably during that period.
2. Market Value Changes
While there is a possibility that off the plan property values may increase, there is also the risk that the market value could decrease by the time construction is complete. You could end up paying more than the property is worth if the property value falls below the contract price.
3. Sunset Clauses and Contract Terms
Many contracts contain sunset clauses, allowing the developer to cancel the contract if the building works haven’t been finished by a certain date. This risk has the ability to leave buyers without a property, usually after a long wait. Buyers should carefully review the terms of contracts with the help of a conveyancer to avoid unfavourable outcomes.
4. Finished Product May Differ
The artist’s impression or advertising material for off the plan properties may not always represent the final finished product. Design changes can occur during the building works, and buyers may find the new property differs from their expectations.
5. Deposit Risk
Your deposit amount is often held in a trust account until settlement, when you buy off the plan. However, your deposit could be at risk if the developer becomes insolvent before the property is completed.
Key Considerations When Buying Off-the-Plan
1. Reputable Developer
Remember to always do your research before signing the contract to an off the plan property. By choosing a trusted and reputable developer, you can reduce the risk of construction delays or poor-quality workmanship.
2. Financial Position
Before committing to anything, consider your financial position. Changes in interest rates or your financial situation between the time you sign the contract and settlement, as these factors, all have an impact on your ability to complete the purchase.
3. Understanding Your Rights and Obligations
Off the plan contracts can be complex, and it’s essential to fully understand your rights and obligations, especially regarding land transfer duty, off the plan exemptions, and potential tax benefits.
The off the plan exemption is particularly important as it provides land transfer duty concessions for buyers of newly constructed properties, with specific eligibility criteria for first home buyers and owner-occupiers. When navigating this process, the services of a conveyancer can be invaluable.
The Role of a Conveyancer in Off the Plan Purchases
A conveyancer plays a crucial role in ensuring that buying off the plan is a smooth and secure process. We can help you navigate the complexities of off the plan contracts and provide legal advice on all property law matters surrounding the topic. At Haitch we can assist with:
Reviewing the Off-the-Plan Contract
A contract for an off the plan property can often be more complex than one for an existing property. Here, a conveyancer will review the contract terms, such as sunset clauses, deposit conditions and other conditions regarding land transfer duty and stamp duty concessions to ensure your interests are protected.
Managing the Settlement Process
Your conveyancer will work to ensure a smooth transition when the settlement date approaches, liaising with the state revenue office to confirm any stamp duty exemptions of concessions you might be eligible for.
Handling Any Disputes or Issues
In case of disputes, such as discrepancies between the advertising material and the finished product or problems with the developer meeting deadlines, your conveyancer will represent your interests. They can guide you through options such as negotiation or even escalation to the Supreme Court if necessary.
If you’re buying property, Haitch Convey’s skilled conveyancers will ensure your off the plan property purchases go smoothly, helping you navigate the legal complexities and avoid common pitfalls. Our dedicated property lawyers will be happy to assist you in making an educated decision about off-the-plan purchases.
Please contact our property and conveyancing team on (03) 8590 8370 today for all of your property matters.
