Buying property off the plan can be a good way to get your foot into the property market and secure a new home at a competitive price. However, there are a number of things you need to consider when looking to buy property off the plan. Let’s take a look at some of them…
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When you buy a property off the plan, you usually pay a deposit - generally equivalent to 10 percent of the purchase price - with the rest of the amount payable when the building is completed.
The plus side of buying a property off the plan is the fact that it can be less expensive to purchase ‘sight unseen’ from a property plan. However, the down side can be the fact that you are handing over a deposit a significant time before you can actually move into the property. There is also the additional risk that the developer or builder may experience financial difficulties, which could jeopardise the completion of the project.
There are a number of things to look at when buying a property off the plan, such as:
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- Investigate what you get for your money – Find out what is covered as part of the purchase price, for instance, what fittings, floor coverings, painting and decorating is part of the ‘package’.
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- Research the developer – Look at other properties the developer has built so that you get a feel for the quality of their work. You can also consider asking people who have purchased properties from the developer about their dealings with the developer and how they feel about their property.
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- Ensure you know what is covered under your contract – Make sure you have the conditions of the contract closely checked by legal advisers. Some of the things for you to consider are:
o whether there are any penalties if you withdraw from the contract
o whether you can make changes to the finishes in areas of the house
o whether you can select appliances and fittings (such as floor tiles)
o if you can visit the site during construction
o what your rights are if construction is delayed
o whether your deposit is secure if construction doesn’t proceed
o whether you can on-sell during the construction period
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- The contract and what it should include – There are certain things that should be included with the contract, such as:
o A copy of the draft of the strata plan showing the lot, any garage space, car space, storerooms etc.
o A scale plan of the interior of the property
o A copy of the approved plans and specifications
o A schedule of the finishes and appliances
o A description of the proposed title
o An agreement made by the vendor to construct using new materials, in a proper and decent manner and within the specified timeframe etc.
o A specific obligation made by the vendor to construct the building
o An obligation by the developer to commence construction within a specific time frame
o A mechanism outlined in the contract for dealing with any ‘variations’
o A dispute procedure
o A rectification provision – which would require the developer to rectify any defects that may arise within a certain agreed period
o Provision for the developer to supply details of building costs in order that the purchaser can claim depreciation against income
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- Quality of the finished product – Before signing the contract, ensure that you know exactly what your property will look like when it is completed and the quality or standard of the fittings and fixtures that are part of your overall purchase price package. Sometimes the fittings and fixtures used in display homes differ from those that are actually used when building properties.
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- Research purchase prices – Are you paying too much? Make sure you find out about market prices – rises and falls – in the suburb in which you are purchasing and in the surrounding suburbs.
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- Paying your deposit – When your offer has been accepted, you need to pay the deposit in order to secure your purchase. The deposit is normally 10 percent of the price of the property and is most commonly paid by bank cheque. You can also pay by personal cheque, but need to ensure that this is suitable for the developer / agent. Some vendors will also accept deposit bonds, which are a guarantee that the amount will be paid. You will need to establish if deposit bonds are acceptable if you want to use them for the purchase.
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- Check insurance – It is important to ensure that your property is covered by insurance. Prior to the exchange of contracts, make sure that the developer or builder has sufficient insurance in place to cover the property should anything happen to your home during the construction process. Once you have taken possession of your new home you need to take out insurance to cover your property.
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- Funding the balance of the purchase price – You may need to settle on your current home in order to raise the money needed to pay the balance that is owed on settlement of your newly built home. This means that the timing of the sale is critical as you don’t want to sell your home too early or too late. If your purchase is for a ‘first home’, then you need to work with your lender to ensure that your finances are available at the time of settlement.
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- Changes to plans – Sometimes changes to building plans occur during the building process. This can mean that the finished complex is not exactly the same as the original plans. You may need to work with the developer to establish a suitable outcome if this occurs.
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