Should investors avoid off-the-plan purchases?

Buying off-the-plan is an increasing trend not just amongst homeowners wanting to downsize but also investors who are looking for more flexibility. But is purchasing a home that is still not tangible really worth it?

Buying off-the-plan involves entering a contract to purchase an apartment that has not yet been built. Unlike traditional property sales, buyers have no chance to inspect the building first and must base their decision on the plans provided by a developer.

"Perhaps the biggest plus side is that you will usually pay less for the property if you buy it in this way. The reason being that you will have agreed upon a purchase price with the developer before the building has been completed, meaning you could pay far less for the unit than it will actually be worth upon completion due to rising property prices," said industry watcher Jessica Galley in a think piece at Starts At 60.

Another perk is the lower deposit amount. Some developers offer deposits as little as 5%, allowing buyers more time to get their finances in check.

Also read: 10 Point Check List For Buying Off-The-Plan

The stamp duty is also lessened, given that taxes will only be paid for the land value instead of the finished property.

However, one of the most significant drawbacks of buying off-the-plan is the potential decline of the property's value after its completion.

"For example, if house prices across Australia plummet, then you could end up having paid a lot more than the property is worth upon completion," Galley said.

Another downside is the quality of the build. Investors need to do their part in researching about the developer before inking the contract. For instance, if the developer fails to complete the build, buyers should ensure that they are entitled to get their deposits back by checking their contracts for a sunset clause. This outlines the specific dates by which the construction must conclude, otherwise the contract would be null and void.

"However, the situation may be different if the developer goes bankrupt before the apartments have been completed. In this case, whether or not you receive your refunded deposit depends entirely upon the terms of your contract," Galley said.