eChoice Home Loans

Buying a home before it's built has advantages - and traps. Large tax savings, delayed settlement and rental guarantees have lured buyers to "off the plan” housing developments over the past decade. Inexperienced buyers should tread carefully.

Buying off the plan means buying a property before it has been built. Most large apartment and townhouse developments are sold this way. Off the plan buying lets you purchase a property for tomorrow at today's prices. In a rising market, this can result in large capital gains before you even move in.

Most developers require a 10 per cent deposit on signing the contract and stamp duty within three months. Final payment is due on completion.This can be anywhere from three months to two years from the date of purchase.

Because you are buying a new home, you will save thousands in stamp duty, typically around $9000 on a $240,000 property. Investors who purchase a new property can claim significant tax deductions for depreciation of the building and its fittings.

Many apartments are now offered with rental guarantees. But beware. Rental guarantees are often built into the purchase price. And there is no guarantee you'll get the same rent once the guarantee has expired.

Advantages

• Lock in a set price for your home
• Delayed settlement gives you more time to save a deposit
• You gain a greater say in finishes, floor plans and interior style
• Significant tax savings
• New homes offer lower-maintenance living
• Wide choice of units in the development
• More time to sell your property

Disadvantages

• You are vulnerable to market fluctuations, oversupply and interest rate rises
• You're buying sight-unseen
• Construction problems may delay delivery
• You have little control over the final quality and look of the complex
• Purchasers are rarely allowed to inspect the construction work.
• Contracts rarely include penalties for late completion.
• There is no money kept back after settlement to ensure proper rectification of any defects.
• The Housing Guarantee Fund will not guarantee any flat or unit that is part of a multi-storey building.

Off the plan buying amounts to purchasing sight-unseen. So it pays inspect the display unit carefully. Look at similar developments and study the contracts.

Questions to ask before you sign on the dotted line

• How much are the strata/body corporate/maintenance fees?
• Are pets allowed?
• What about guest parking?
• Is the developer reputable?
• Is the deposit held in a trust account and not with the builder?