Buying off the plan for example an apartment can be risky if you don’t know what you’re doing, especially for first time or non experienced investor. There are some risks involve when buying off the plan, for example:
- The quality of the finished product can be a lower quality
- Or the project may take longer to complete than expected
- What happen to your 10% deposit?
- And there are some other factors to consider too
You have to look at your goals, and your financial situation to see if whether off the plan is suitable for you or an established property. If off the plan is a suitable strategy for you, buying off the plan can have massive advantages.
How does off the plan work?
When you buy off the plan property for example an apartment. You sign the contract of sale and you pay the 10% deposit of the contract price, you pay nothing until settlement. Depend on the project you buy, it could take 6 months, 1 year, 1.5 years or 2 years to build. Make sure you check your finance first to see if you are qualify before you buy any property, and make sure the completion time frame is suitable for your investment purpose.
The benefits of buying off the plan
- Investors buy at today price and the property may increase in 1.5 – 2 years later, like any properties it depend on market condition.
- Allow you to get your foot in the door with minimal cost.
- You can save massive stamp duty. For example a $400,000 property. Buying off the plan the stamp duty is around $2,000-$3,000, an established property costs you around $20,000 stamp duty.
- Brand new properties have 7 years building warranty as compare to something old.
- You can claim maximum depreciation on a new property, allowing you to claim maximum tax for your investment.
Is your 10% initial holding deposit safe?
There are two common ways for you to pay the 10% deposit for the purchase of a property.
The first way, is by bank guarantee. You go to your bank and you tell your bank you want to get a bank guarantee for the purchase of the property. You give the bank 10% deposit, the bank put this money in a term deposit in your name, and the bank issues you a bank guarantee, you provide the bank guarantee to the vendor. You earn interest in you term deposit, and the money is release at settlement.
The second way, is by bank cheque, the bank cheque is made payable to the vendor solicitor and not the vendor. The vendor doesn’t have access to your money. The money is release to the vendor at settlement. Hence your money is safe.
Is buying off the plan safe?
Everything we do in life there is an element of risk, like driving a car. We can minimise the risks if we buy only from reputable developer.
Reputable developer delivers quality product, complete project in a timely manner, and they want to leave a good name and reputation, they are here for the long term.
In recent years apartment projects have been very popular, well perceived by owner occupiers and property investors especially within 10km radius of the Melbourne CBD. And the trend of the future is apartment living due to the following reasons:
- Government support developments close to CBD.
- Apartments are more affordable than houses.
- People want to be close to Melbourne CBD, employment, public transport, hospitals and all amenities and facilities.
If you are planning to invest in an apartment, select a great location with potential for capital growth and high yield. Only buy good project from reputable developer.
If you need some advice as to what is best for you, feel free to contact us, we are here to help you.