Some people love the idea of buying a brand-new property off the plan, where they may even make capital gains before it's completed, while others consider the strategy risky.
Love or loathe the idea, new developments are increasing over the coming years as governments aim to both modernise our cities and combat a national housing shortage.
At the same time, Australians have redirected their focus from the suburbs to the city, happy to trade backyards for cafes and convenience.
Many have also become reluctant to design and build their own home due to recent hype around supply chain shortages, escalating costs, and difficulties sourcing builders.
Off-the-plan properties are usually apartments but can also be townhouses or houses, such as those in greenfield developments on city fringes, which may also include land in the contract.
While there are clear benefits to buying these shiny new homes, experts say you need to do your research.
Benefits of buying off the plan
Investment advisor Miriam Sandkuhler at Property Mavens said off-the-plan properties can suit first-time buyers who are trying to get into a market at an affordable price point, or downsizers who want to remain in the same suburb.
![](data:image/svg+xml,%3Csvg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 800 450"%3E%3C/svg%3E)
Expect more off the plan deals in coming years. Picture: Getty
Sometimes an off-the-plan property holds particular appeal, she added.
"It may have been designed in a particular style or by a sought-after designer, or it may have an appealing floorplan or be in a boutique development,” Ms Sandkuhler said.
Purchasers also have a say in the apartment types, aspects, and locations on offer, and depending on the contract, the colour scheme, fixtures, and fittings.
There may also be financial benefits to buying off the plan, explained Stephen Abolakian, co-managing director at Hyecorp, which has specialised in residential developments for about three decades.
For starters, buyers only need a 10% deposit rather than the traditional 20%, Mr Abolakian explained.
"They can secure the property before the market keeps getting ahead of them. And then they have time to save up enough money for equity and stamp duty,” he said.
Get your realEstimate™
Track your property's value and unlock insights and data tailored for property owners.
Investors, meanwhile, can enjoy tax depreciation benefits only associated with brand new properties.
Luke Harris at The Property Mentors said one clear bonus is the developer taking on the risk and headache of delivering the project.
"This means if there's an issue with the builder, the developer has to deal with that," Mr Harris said.
There's even the happy possibility the property might go up in value while it's being built.
Be aware of the risks
But experts warn that banking on prices rising during construction is a risky strategy. Market conditions can change very quickly, and this can also impact lending criteria.
Buyers don't need to have finance in place before purchasing off the plan, and they can't assume that the bank will lend them the money when it comes time to settle, Ms Sandkuhler explained.
"If their circumstances change, or interest rates rise, they may not even qualify.
"In this case, they've either got to on-sell the property and hope that someone buys it, or they lose their deposit and the developer could sue them."
There are some pros to buying off the plan but also a few risks ot be aware of. Picture: Getty
There are further risks, she added, such as the builder or developer going bust, or delays in completion, which may force buyers to keep renting.
And there is always a fear that the developer will pull out on or before the sunset date, in order to sell the property at a higher price.
Every off-the-plan contract contains a sunset clause that enables the buyer and/or the seller to cancel the contract before the agreed date.
Recent legislation changes make it harder for developers to pull out, but Mr Abolakian said "it's still a concern".
Top tips for those buying off the plan
Most of the risks of buying off the plan can be managed and mitigated, experts say.
1. Choose a large and reputable developer
"Developers with a long track record won't cancel contracts because the market's gone up," Mr Abolakian explained.
He advises buyers to research the developer as well as their builder (which are not always the same) and check out their previous developments.
2. Buy once the build has started
The five-year timeframe for off-the-plan properties gives the developer time to sell enough of them, get their finance approved, submit everything to council and start the construction.
"Some people feel more confident buying once the previous steps are out the way and the build has actually started," Mr Harris said.
3. Get legal advice
"Contracts are incredibly complex and are usually written in favour of the developer," Ms Sandkuhler said.
An off-the-plan specialist conveyancer can review a contract before you buy, highlight any risks or special conditions, and sometimes help you negotiate a better deal.
4. Choose an area where demand outstrips supply
If you're hoping for capital gain while your property is being built, don't look at a suburb where there are numerous similar projects underway.
This is particularly important for investors, who don't want to have 100 others looking for tenants at the same time, Ms Sandkuhler said.
"Ideally you want to buy in a building that is primarily for owner-occupiers. Ask the right questions and have the nous to know which market it's appealing to."
5. Do your sums
With the uncertain inflationary environment coupled with the risks of buying off the plan, it's crucial to have some cash in reserve, Mr Harris said.
It's also a good idea to enlist a mortgage broker before committing to get an understanding of what you can afford.
"If you're nervous about your finances, your job and interest rates, buying off the plan may not be a good idea," he said.
"But if you're smart about what you're doing and you're buying something that's not stretching your budget too far, buying off the plan can really work."