Home / Home Loans /
Building a new home
New home sales are back on the rise, fuelled in part by many investors and owner-occupiers buying off the plan. The concept is straightforward: put up a deposit (usually 10 per cent) to help the developer fund construction and pay the balance when the build is complete. Apartments are now springing up at a rapid rate in capital cities and popular holiday locations with the confidence that property prices will rise, handing buyers a tidy capital growth when they eventually take possession.
Developers sell off the plan to entice as many sales commitments as possible to then secure from their lender the finance they need for the build. Because buyers are essentially handing over their deposit for the promise of an apartment they won’t see for one to two years (or more), prices are set at current market rates with incentives often offered to entice buyers. This adds to the capital gain potential, but price rises are never guaranteed, as we have seen in past years.
In exchange for your deposit, the developer should provide a contract that outlines the details of your particular purchase, the completion date for the development and the deadline for when a decision must be made as to whether the development will go ahead. That decision usually hinges on whether sufficient finance has been secured. If the developer pulls the pin or passes the decision deadline, you should be entitled to a refund of your deposit, but this depends on the conditions of the sale contract, so it pays to read this document carefully and if required seek financial or legal advice. Full payment for the property is not required until settlement, which is usually one to three months post completion.
While buying off the plan looks great on paper and can reap rewards, getting in on the ground floor of a new development is not always a fast track to making money. Haven looks at how you can make the most of the opportunity and avoid some of the common pitfalls.
Common questions for home builders
Time on your side
One of the biggest advantages of buying off the plan is time. Unlike traditional property purchases with relatively short windows to round up the total finance, you will have at least 12 months, if not longer, to settle. Savvy buyers will take advantage of this extra time to save their pennies and reduce their borrowings.
New home, no hassles
If you dream of a new home but have nightmares at the thought of building one, an off-the-plan purchase may be the perfect compromise. Although you will not get to design everything as you would with a custom-built home, most off-the-plan developments allow some customisation of finishes and fixtures. Make sure your contract outlines what you can tailor and that you are clear on any additional costs.
First-home-buyer advantage
Various incentives are still being dangled in front of first-home-buyers, which may add to the appeal of buying off the plan.
Concessions vary across Australia and some have been curbed since January 1, so visit your State or Territory web site for the latest information on grants and exemptions. You can also research your eligibility for stamp duty concessions on new properties at www.stampdutycalculator.com.au
Investment incentive
Off-the-plan apartments are often pitched heavily at investors due to the tax* benefits that come with depreciation on new properties and rental guarantees. Tax savings will depend on your individual circumstances, but generally the newer the property, the higher the depreciation allowance for the building and fixtures.
Investors may also be offered attractive rental guarantees for a limited period. Make sure you do your homework on rental returns on similar properties in the area before accepting the developer’s terms. Be wary of over-inflated rental guarantees. Builders will sometimes promise a high-rent yield to lure investors, build the cost into the property price and then subsidise any gap themselves for a short period. When the rental guarantee expires, you may find the actual market rent falls well short of what you originally pocketed. If investing, make sure you have the option to manage the property yourself or with your chosen property manager from the time you take possession.
Beware a boom
Many buyers get swept up on a wave of rising property prices when they hand over their deposit in exchange for a floor plan. Historically, property is a consistent long-term performer, but property prices can plateau and even wane at the mercy of economic factors.
Buyers also need to be wary of over-supply, which may devalue their property.
Make sure you consider the bigger picture if buying off the plan. Research how many other developments are planned in the area and whether any increase in apartment numbers is justified by new or improved infrastructure, such as transport corridors, business precincts, universities or hospitals.
Be discerning about the developer
Make sure you purchase from a reputable builder and take the time to research their previous projects. Do they use quality contractors? Do they deliver projects on time? Make a point of visiting some of their projects so you can assess the finished product first-hand.
Top Tips
- Investments like this are big decisions, so investing in the right professionals to have onside before you commit is money well spent. Ensure you get professional legal advice on any contract before you sign it and that you speak with your financial advisor or tax professional to make sure you’ve got the right advice from day one.
- Make sure your deposit will be refunded if the project doesn’t go ahead by a certain date.
- Make sure the contract contains as much detail as possible about the finished product.
- Be clear on what finishes and fixtures you can customise.
- Find out if you can on-sell during construction in case your circumstances change.
- Ask if you can inspect the site during construction.
- Talk to your mortgage broker about
Need a home loan?
Whatever your circumstances, we will look for a loan that’s right for you, not the lender. Send through a quick enquiry and we will be in touch.