There are lots of different ways to buy a home, and buying off the plan is one of them. Buying a property off the plan is very different from buying an existing home at an auction and walking in the front door. Building one instead can be a viable strategy, so we’ll go through how this works. Read on to find out more about buying off the plan vs an established home.
Buying off the plan vs an established home
What is buying off the plan?
An ‘off the plan’ purchase is when you buy a property that hasn’t even been built yet. All you have to go off is a building plan, so you’re buying ‘off the plan’ without a single shovel being put in the dirt yet. Once you’ve bought the land, you’ll then have to finance the construction of the property and wait until it’s fit to live in, which can take a while.
What is buying an established home?
Buying an established home is the more common option these days, and as the name suggests is simply buying an existing property. This is a convenient option as you can move in more quickly and has fewer potential complications when building, which can also give you a more accurate idea of the price without any blowouts. But, buying established also has the disadvantages of the house not being specifically tailored to your needs. These houses can also be more popular, which means they can be harder to buy, and ones closer to desired locations can be very expensive.
The benefits and drawbacks of buying off the plan
Buying off the plan provides some advantages, but it also has some drawbacks.
You can get some government grants
In some instances when building a home from scratch, you can qualify for grants offered by the government.
You can get stamp duty concessions
Another cost reduction you can get is on stamp duty, which can be a major expense otherwise.
Developers give concessions too
The developers of certain properties might give you reduced costs or a cash grant/discount to build your home with them, but you should check the terms and conditions of these deals.
You can customise the home and make it ‘yours’
This can save you from having to renovate or repair anything
You can save money while it’s being built
Some builders only require a 10% deposit initially and let you pay the rest later.
There’s potential for capital growth
The property could actually increase in value even while it’s still being built.
Construction can be difficult and lengthy
Lots can go wrong when constructing a house, and things like bad weather can delay the build and stop you from moving in until later. Buying established homes is easier.
Construction costs aren’t always accurate
Whether it’s something going wrong, or the developers adding extra costs, it’s easy for the home to cost tens of thousands more than you initially budgeted for.
There are extra risks things can go wrong
A poor-quality build could add major repair bills later on. Plus, the build might not ever be completed. You should get your deposit back for this, but it’s still a waste of time.
Financing the construction is harder
Loans for off-the-plan homes are a bit less straightforward than a regular home loan.
The property can decrease in value
Just as it can increase in value during construction, so too can it decrease. Prices in the area could fall in the time it took to build, and a lower value could increase your loan-to-value ratio (LVR), which leads to extra fees.
How to buy off the plan
- Although you need to do a lot of research when buying an established home too, having to build it on top of buying adds extra steps. Therefore, you need to make sure you do the following.
- Find a good area to buy: Just as you would when buying an existing home, you need to find an area with vacant land that also has good livability on top of capital growth potential in the future.
- Think about the property you want: Now, consider what kind of home you want to build? houses, apartments, townhouses etc. all have different merits and flaws, and depending on the area you might be limited in what you can build.
- Have plans drawn up: Unless you’re a professional architect, find a reputable professional to create a building plan for you based on what you want. Keep a copy of any finished plans for later.
- Find a developer: You’ll then need to approach a developer to build the property for you. You’ll also need to keep a signed contract for the build. These developers should give you a detailed schedule of costs.
- Review the contract carefully: Once the developer gives you a contract, review it very carefully, looking at the deposit required, whether your desired plan is in there, what their defect policy is, the cooling-off period and so on. You can get a conveyance to do this on your behalf.
- Check for those grants: As mentioned above, building a property can give you access to tens of thousands worth of government cash grants and discounts, as well as some from the developers themselves.