Should You Purchase Properties Off The Plan?

Dilleen Property Group 2022

Off-the-plan properties or house and land packages generally refer to buying properties that haven't been built yet or are currently under construction. The typical process of these types of properties involves a developer having a plot of land which they subdivide into different lots. They then sell the land parcel and the builder puts a margin to build the property. The developer then hires a marketer to convince buyers to commit to purchasing and to sign a contract of sale for the proposal of buying a property that is about to be built. It is important to note that purchasing properties of this type may bring many disadvantages.

Here are 3 imperative reasons why you should rethink purchasing properties off-the-plan:

1. Time

One of the major reasons why you should not purchase properties off-the-plan is because it costs a huge amount of time. When you commit to the purchase, there is a long wait time, sometimes ranging between 1-3 years for the property to be built. This time is prone to be pushed back even further and this will hold you up from buying other properties. Not only this, but the market is constantly changing. Being tied up to one property for 1-3 years is much too long when the market could dramatically shift during that time.

2. Limits borrowing capacity

Purchasing off-the-plan properties means that it will restrict what you can do with your property portfolio in the meantime. Your borrowing capacity will be committed to the off-the-plan property and you may not be able to purchase other properties while waiting for the construction to finish. If you want to purchase other properties while waiting for the construction of your property, it's likely that you won't be able to obtain finance for many, if any other properties because your borrowing capacity is tied up in the off the plan property you already committed to. Another risk is if you decide to purchase other properties during the construction wait time, you may not be able to get finance for your off-the-plan purchase when it comes time to settle that loan.

3.  High Price Point

Off-the-plan purchases are generally overpriced. They are sold for above the median house price and tend to be at the top price point tier of the market. From a bank valuation perspective, the property is already at the top hence the buyer would have to wait between 15 to 20 years for the market to catch up and rise higher than the purchase price.

Conclusion

Currently, many marketing and property investment companies in Australia push buyers to purchase brand-new properties. This is because there is more margin for agents to sell brand-new properties compared to existing properties. However, from a buyer’s perspective, it is most beneficial to purchase existing properties as they can be bought under market value with less wait time and you can gain instant equity to purchase your next property and grow your portfolio.

If you require assistance or have an inquiry about purchasing investment properties or building your own property portfolio, you can contact us here to learn more about our investment strategy.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.