Buying off the Plan – What First Home Buyers Need to Know

Family With Baby Meeting Financial Advisor At Home
Share on facebook
Share on twitter
Share on pinterest

Buying off the plan can be a good strategy for first home buyers.  You only have to put a deposit down and settle when it is completed.  Most developers will require at least a 10% deposit.  But in a property market that is correcting such as what is happening In Sydney and Melbourne, off the plan purchase presents risks. 

There are several benefits for first home buyers purchasing an apartment off the plan.

  1. The apartment is brand new and if its price is below $600,000 in Melbourne, first home buyers do not need to pay stamp duty.  For first home buyers in Sydney, stamp duty is exempted for purchases up to $650,000;

     

  2. Another benefit is the price of apartments.  You can still get units in Sydney for less than $650,000 for a 1 bedder or a studio depending on location.  Melbourne is less expensive and units can go as low as $350,000;

     

  3. Buying off the plan will buy you time.  It will take at least 2 years for an off the plan unit to complete.  The two years will give you time to save more to put as a deposit for the apartment.  More deposit means less loan and less monthly repayment;

     

  4. If the market continues to grow, buying off the plan means there’s a good chance a property will be worth more at the time of its completion. 

Despite all of the benefits I mentioned above, purchasing off the plan can be a gamble.  It is important that you are fully aware of all the possible pitfalls particularly those relating to lending conditions.

  1. There are postcodes in Sydney and Melbourne which lenders are only willing to lend up to 70% of the value of the apartment. Citibank and NAB are just a few of the lenders who have issued guidelines on postcodes and suburbs that they have less appetite for. It is important that you speak to your finance broker before you provide the 10% deposit to the developer.
  2. There is uncertainty in buying off-plan and lenders are beginning to restrict some lending. Your may have the borrowing capacity today but any changes in the market such as interest rates and property values will affect your ability to borrow in the future.  I often tell my clients to save as much as they can, to defer having more kids and fiercely keep their jobs in the next two years
  3. Other than lending, there are issues relating to the developer.  It is possible that the developer goes bankrupt and the property is not completed.  Oftentimes, construction gets delayed.  Another disadvantage of buying off the plan is that you’re unable to see the property physically.  The work may not be up to standard as promised by the developer. 

Buying off-plan can be more affordable and flexible for first home buyers.  The only way to minimise the risk is to do your due diligence, have a reliable conveyancer review the contract and have a competent finance broker on your side. 

Searching for your first home or next investment? Let us help you choose a home loan that's right for you. Click below for a 30 minute chat with us.

Competition

Our Competition

If you had the chance to travel to anywhere in Australia, where would your destination be?  We are giving our website visitors a chance to win a domestic travel voucher and $1,000 spending money.

Sign Up For Home Loan Tips

We are a team of qualified professionals who have been in the mortgage broking industry for the last 10 years. We are also property investors who have accrued the knowledge and experience to help you achieve your property goals.

Learn the right strategy and find the resources to empower you to buy your first home, to refinance or to purchase your first investment property. Our team of brokers can guide you through the home buying process and answer your questions,
including:
➔ Where and what you can buy?
➔ How much deposit will you need?
➔ How much can you borrow?
➔ What are all the other costs involved?
➔ How can you repay my mortgage quickly?
Our role as your mortgage broker is to guide you through the process to ensure that all your needs and options are considered.