The secrets of buying off plans

Buying off the plan is attractive. In Australia, most of the time you just have to pay 10% deposit and wait for settlement. While it is being constructed you also get to enjoy capital growth of the entire value of the property without paying any interest on repayments.

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There are many articles out there that explains the shortcomings of purchasing off the plans. Know that they exist and you as an investor should be aware and be cautious of these at all times. In this article, I am not going to cover these, but will share my learnings from buying off the plans.

1. Find the right agent

This is even more important than finding the right project in my opinion. This is especially so when you are looking at purchasing in a heated project and strategised to buy the absoute cheapest, best valued (I guess for risk concerns) units available in the project. The general hierarchy goes like this:

  1. at the bottom of the chain, there is the general public who decides to walk into a project after the initial launch. Firstly, these people gets the left overs which are generally the worse units in the first place. Secondly, they generally pay the most as there are usually price increases after the initial public launches that are designed to lure people in.
  2. The early birds who register interest in a project early on gets put in an early-access VIP list. They have a good set of units to choose from and generally walk out satisfied with their purchase(s).
  3. Then there's the super-VIP, who are generally friends and family of employees of the property developer or real estate agency commissioned to do most of the selling for the developer. This is the group you'd want to be in ideally for every single project you buy in, not only do you are exposed to the best choice of units but can usually enjoy a discount too.

Once you've identified your agent, nag and beg your way through, make sure he or she remembers who you are. Let them know of your criterial and if they can get you the unit you want, you will not think twice to sign.

2. Find the right project

I like to go for projects that are bigger in scale, these are projects with mutliple towers scopped. It's hard to go wrong with these, developers have a bigger marketing budgets which generally leads to higher demand in the project which could potentially be easier to sell off in the future.

3. Do your math

Just because you cannot afford it now, doesn't mean you cannot afford the property when it's completed. There are always projects that have a longer expected completion date. Go for those if you are on a tight budget now, so you have plenty of time to save. If it doesn't go well, you can always sell the purchase before completion.

4. Know your tax obligations and entitlements

Taxes doesn't need to be complicated as long as you are aware of your obligations and entitlements. The obvious ones are:

  • Owner occupied vs investment purchase (this touches on capital gains tax).
  • Stamp duty is payable on the earlier of 15 months of contract sign date or settlement.
  • Stamp duty concessions.
  • Grants such as first home grants.
  • Primary place of residency (PPOR) rules revolves around you residing in the property AFTER it has completed. This means, if you are intenting to treat the off the plan purchase as your primary place of residence when it is completed, you can potentially double dip on the benefits from selling your primary place of residence if you sell your existing PPOR within 6 months of the off the plan purchase being completed.

 

Happy purchasing!