The Step by Step Process
If an off the plan purchase is on the horizon, or you’re even just considering it, I strongly encourage you to take 10 minutes out of your day to read this blog post – there is invaluable information that will give you a much better understanding of what you’re getting yourself into!
The process itself begins in much the same way as a normal purchase, you will need to do your usual house hunting and research for a property, it’s just that this time it’s not actually built as yet. And this is the reason why you need to be aware of a completely different set of possibilities as part of your decision making process.
THINGS TO CONSIDER
1. Buying off the plan will usually bring with it long lead times, so the market as at today may very well be a different market in 1,2,3 or even 4 years when it comes time to settle on the property. If the market increases, no worries, you have done well, but are you ready if things slow down in that time?
Because from the lending side of things a bank will only be able to provide you with an approval that lasts for 90 odd days. And with the long lead times that come with an off the plan purchase, any upfront approval is redundant for the future settlement. But that doesn’t mean you shouldn’t be speaking to me at the start of the process, I’d strongly argue that we are very important at the start of the process to see if what you’re trying to do is even possible as at today’s date. The time lag highlights the importance of your budgeting and savings, as a buffer is always recommended should things change between purchase and the settlement.
2. Because you won’t know what the final product is, until it’s actually built, make sure your doing research on the developer itself, are they experienced? have they got a good track record? Research their previous developments to see if the quality of their prior work is going to match what you’re spending. You need confidence that they will perform and deliver as advertised.
3. Enlist the services of a reputable conveyancer or solicitor to act on your behalf – have them read the entire contract (including all the detailed terms and conditions) so you understand all of your obligations throughout the process. Their expertise is invaluable and necessary to numerous aspects of the process, what is the deposit required? where is it held? what are the implications of the sunset clause? can you sell the place? And if what I’ve just said sounds like a foreign language to you, it’s time to start talking to a conveyancer or solicitor to get the correct answers.
There’s no doubt that Australians are embracing off the plan purchases, you only need to look to the skies when driving around major cities in Australia to see that this is the case and a lot of this comes down the fact that the potential benefits really resonate with many buyers:
1. The buying process becomes mentally and financially reasonable for a lot of people – typically you only require a 10% deposit to the developer and then the remaining balance is payable on completion of the property. And whilst the property is being built, the purchaser has more time to save up before settlement.
2. There is the possibility that the value of the property you purchased will increase in value over the time it’s being built. Sydney in particular has seen dramatic increases in valuations of off the plan purchases in the last 3-4 years in particular. In some cases, people didn’t even need to tip in any more deposit as the valuation had increased to a point that it wasn’t required.
3. New properties have larger tax depreciation benefits, but remember, this only benefits you if the property is an investment (or will end up becoming an investment), further to this, most states and territories have some form of grant or stamp duty concessions when you’re a First Home Buyer with an off the plan purchase.
4. Lastly, the demand for “new and modern turn key solutions in our busy lifestyle is almost coming as a non-negotiable for many Australians.
Now we have covered off the considerations and benefits, it’s at this point where you’re going to decide to proceed with the purchase or not. For those of you that did in fact purchase off the plan, we need to look at the process past the exchange of contracts and your deposit being paid.
SETTLING ON YOUR PROPERTY
The developer themselves will set out a rough guideline with regard to build time, and you will also typically receive quarterly or periodic updates as to the progress of the development. As your approaching completion, say 3 months out from the expected settlement, it’s time to start talking to me again.
We will need to re-look at your entire financial situation, do the analysis on appropriate lenders and in tandem with the client, we will proceed with the most appropriate option. But hold your horses, I’m yet to mention, what is probably the most important part of this entire process now – and that’s the valuation – the lender will always require a valuation, so they can see exactly what they deem the security to be worth. The valuation itself can go 1 of 3 ways, it can come in at purchase price, it can come in over purchase price, and lastly, you need to prepare should it come in under purchase price. Because ultimately, the valuation will impact how much money you need to tip into the transaction over and above your initial 10% deposit. Pending the outcome of the valuation itself, we may continue with the lender we hold an approval at, or we might even need to navigate to another lender to make things happen.
With valuations underway, it also signals that settlement isn’t far off! And that’s the exact reason why we were prepared with the client ahead of time, and now with the valuation in hand we can push the lender to a formal approval. Because you mustn’t forget that we still need to go through the normal motions once the formal approval is issued, that being – loan document sign up + loan document need to be certified and any other small pieces will be covered off now so that we are ready to book in for settlement.
Whilst we’re working towards a formal approval, the developers will working their hardest to get the finished development registered with the titles office, because once confirmed, the Sellers solicitors will call for settlement, meaning you usually have only 14 days for a settlement window.
The process itself isn’t rocket science, so long as you’re prepared well ahead of time, and you are working with a broker that understands the timing of these off the plan transactions. The last thing you would want, is to not be ready for settlement, and potentially risk losing your 10% Deposit as well as the property itself.
Just like buying an existing property, research and preparation is always going to favour those who take the time to put the effort in. There’s a lot to be said for moving into a new place as a turn key solution, so the demand in Australia for off the plan is always going to be strong moving forward.
Whilst I’ve tried to be quite comprehensive in my explanation, please feel free to contact me directly if you have any further questions on what I’ve discussed in the above blog, you can contact me directly as follows:
0451 668 673