Buying ‘Off-the-Plan” is nothing new, yet with the recent announcement of incentives for investors and first-home buyers to purchase new properties*, it’s likely to be more popular than ever.
“Off-the-Plan” property can of course range from a development yet to commence construction, all the way to a property near completion that has not yet been registered with the Land Titles office.
There can be plenty of benefits to buying “Off-the-Plan”: the opportunity to secure a brand new property in a popular area before the development sells out; potentially significant price incentives for very early buyers; the ability to avoid costly outgoings associated with taking over an existing property; securing an additional window for saving.
Of course, along with the benefits comes a level of risk, which the informed investor can plan to guard against. A key challenge to for purchasing ‘Off-the-Plan’ is the added complexity involved with securing financing, particularly if you are a first-home buyer.
When the newly announced property incentives begin in NSW on October 1st* there could well be more interest than ever in ‘Off-the-Plan’ developments. Anticipating this, many of the major banks have recently confirmed their policies in relation to these new developments, in particular for first-home buyers.
Commonly the banks will provide conditional loan approvals that are valid for up to six months. However currently the Commonwealth Bank will provide a conditional loan approval for up to 18 months, when lenders mortgage insurance does not apply (with a genuine deposit of 20% and demonstrated savings of at least 5% of the purchase price)^.
In either case, if the development settles in beyond the conditional loan period, purchasers may need to repeat the bank’s process of assessment at that time. At this point, there is always the chance of a price valuation difference at this later date. To protect against this investors can ask for contracts to stipulate that the end product meets the market valuation.
As always, when a purchaser can raise a 10 – 20% deposit they will in a better position to deal with any eventuality, be they valuation variances or otherwise.