When you’re looking to get into the property market, buying ‘off the plan’ may seem like a great idea. After all, it can look like an easy way to get a new property, with modern amenities, for great value.

But buying off the plan comes with a lot of risks. And many of these are exacerbated in a declining property market like we’re experiencing in 2023.

What is ‘buying off the plan’?

‘Buying off the plan’ simply refers to the process of buying a property that hasn’t been built yet. Instead of finding a property that you like, walking through and viewing it and then putting down an offer, you are entering into a contract to buy property that doesn’t exist yet. You’ll base your decision to buy on viewing a display home or unit, or even just from descriptions contained within the plan itself.

Is buying off the plan safe in 2023?

There are pros and cons to buying off the plan in general. And in 2023, there are some new ones to consider as well.

Pros to buying off the plan

• Cheaper costs. When you buy an off the plan property, the cost is set at the time that you enter into the contract, rather than at the completion of the project. So, if you happen to be in a property market where prices are on the rise, you may end up with more value for money.
  
• Defer stamp duty. Many states will allow you to defer stamp duty for 12 months after you enter into your off the plan contract (or until the property is completed).
  
• Defer final payment. Because you won’t have to make final payment until your property is complete, you have more time to gather the funds you need or make arrangements with a mortgage lender.
  
• Input into design. When you buy off the plan you may have an opportunity to have some input into the design. You may be able to choose certain fittings, or make decisions around the building process itself. This will, of course, depend on the builder.
  
• New property benefits. Because you’re getting a new property, you’re also getting a lot of new property benefits. These could include premium rents as an investor, lower maintenance costs and that ineffable feeling of being the first to live in a property.

Cons to buying off the plan

In general, there are a lot of risks involved when buying off the plan, and many investment advisors advise against taking the chance.

• No guarantees. Because the property doesn’t exist yet, there are no guarantees about what you will get in the end. This is especially true if you are buying the property off a plan or a sketch, as the final product could look significantly different.
  
• Development delays. A delay in construction means a delay in the time when you’ll get to take full ownership of your property. This could leave you without a place to live, or, as an investor, missing out on rental income.

• Developer changes its mind. Sometimes a developer may simply decide not to go ahead with a development. This is a risk in a volatile property market where the developer decides that the project simply isn’t viable.
  
  While you will likely get your full deposit back, you will struggle with lost time and opportunity cost.

• Developer goes under. In a tricky economic environment, there’s always a risk that a developer could go bust. This could leave you in the lurch, and it may take a long time (and a lot of courtroom battles) to see your money returned, if at all.

• Property value drops. Again, your costs are set at the time you sign the contract. And there’s always the risk that the property market declines in the interim.
  
  This could mean that the value of your property will decline as well, leaving you in the unfortunate position of paying more than the property’s market value.

• Bank valuations leave you short. Your lender will typically re-evaluate your property after it’s completed to ensure it meets the expected standards. If they value the property lower than initially anticipated, they may not lend you the full amount of funds. This could impact your ability to fund the project overall.

• Personal changes. You could experience personal changes due to the lag between your decision to buy a property and the time you take ownership of it. This might be a change in relationship status, a change in your personal finances or even a job change.

In the normal course you would simply sell your property and move on. However, because you’re still waiting for it to be finalised, you’ll be stuck until the property is finally completed.

What to worry about in 2023

We’ve had unprecedented strong property prices for a number of years. But in 2023, we’re seeing a property decline. In fact, national property prices are expected to decline 7-11% across the capital cities this year. This is following a 2.3% decline in 2022.

A declining property market means that some of the cons listed above will demand more serious consideration. For example, with property values falling, you’re far more likely to make a bad deal and end up with the property decreasing in value before it’s built.

In addition, builders and developers may go under more frequently due to the pressures of the market. In fact, this is a trend we’re already seeing including with construction company giant, Metricon.

Rising construction costs and supply chain issues also mean that there could be significant departures from the proposed look of off the plan properties. They may also mean more delays that impact your ability to get into the property or even require you to pay more than you originally agreed to (depending on your contract).

At the end of the day, buying off the plan is still a viable option. But proceed with caution, and be sure to seek expert advice first.

We're here to help

Whether you want to take the buy off the plan, or look more traditionally, we’d love to help you on your new journey!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.