Risks and Rewards of Buying Off Plan
June 2, 2020
Purchasing well can mean lots of different things to different people. Some buyers are investors, some buyers are short term flippers, some are forever home buyers – so I’ll try to keep my take on things relatively broad.

Let’s start by establishing what is referred to as “off plan”. Off plan is effectively when you are agreeing to pay the full amount for a to be finished/built product that does not yet exist. This is commonly apartments, however can also be community titled townhouses – for example a group of 4 townhouses that are all built at once and have shared walls.

This is different to a traditional “house and land” type purchase, where you buy the land separately, then enter a build contract with a builder directly.

RISK AND REWARD: RISK

Off plan purchases carry risk because they do not yet exist. The building may not complete or the project may not achieve requisite pre-sales to even commence.

Fortunately, deposits paid on off plan property are held in trust, and are able to be returned if a project does not proceed. In this situation, the buyer would still encounter loss via opportunity cost – that deposit could have been used elsewhere!

House and land purchases carry a different type of risk – engaging a builder directly needs to be considered carefully as you need that builder to be able to deliver a quality product – there is no developer managing this process for you as they would in an off plan scenario – so be sure to do your research and choose a reputable builder.

RISK AND REWARD: REWARD

This is where the risk starts to look worthwhile.

The first reward that you might experience by buying off plan, is that the property you agreed to buy 12+ months ago is actually worth more at completion than it was when you signed on the dotted line. Great! Savvy buyers can make tens or even hundreds of thousands of dollars this way, but need to be well versed in identifying value and predicting next year’s most popular property trend.

Another reward that is less tangible, is that off plan product can be more accessible, and often more flexible, than existing product. Developers go out of their way to ensure their projects carry points of difference – perhaps they are building homes in an area that is otherwise difficult to buy in, perhaps they are offering outstanding value in an area that otherwise expensive, or perhaps they are simply providing something different in small ways that makes that property appealing.

HOW TO PICK A WINNER

Because winning is different to all people (capital gains, yield, lifestyle benefits to name just a few different types of wins) it is difficult to provide a one size fits all approach.

However, for all buyers – the key is research. Understand what you are buying explicitly, and rely on information that is in your research. Research extends to understanding the implications of your purchase on your own financial situation. Are you familiar with the recent changes to depreciation rules? (mainly for investors) Brand new property is considered the most effective for this purpose. If you are even the slightest bit unsure – find someone who can give you sound advice and guidance and don’t be afraid to pay for good advice.

Do your best to get to know the area, the zoning, nearby infrastructure projects that might drive growth and therefore property prices. Is the government putting time and money into that location? If not, why not? And if not… why should you?!

Whatever you do and whether it is a resounding success or quite the opposite, remember that property usually performs best as a long term investment.

If you’d like any more information on the content covered above, please contact James Polacek at james@projectedpm.com.au