WHAT ARE THE BENEFITS OF BUYING AN OFF-THE-PLAN PROPERTY?

Helping ADF members invest in off-the-plan properties with confidence

Setting goals for successful property investment

“In July 2024, realestate.com.au reported that nearly one in three buyers were choosing to build or buy off-the-plan. They suggested this was due to lifestyle changes, financial incentives and a desire for eco-friendly living. And it’s looking very likely that this ‘trend’ is set to continue through 2025 and beyond”.

For Australian Defence Force (ADF) members using property investment to secure a successful financial future, purchasing an off-the-plan property offers substantial advantages. But like all investment decisions, there are pros and cons to buying off-the-plan. In this article we’ll explain what ‘buying off-the-plan’ means and look at the benefits and potential risks you might encounter.

As always, each investment decision should be made according to your own individual situation. That’s why the team at Capital Properties are passionate about helping you make educated decisions that will help you secure your lifestyle and financial goals.

Come along to our FREE Capital Properties Discovery Session to get started. Unsure if you’re ready to invest? Take the Capital Properties Property Investor Quiz and in less than 10 minutes you’ll know where you stand and help you uncover opportunities to take control of your financial future.

On the go? Here’s 30 seconds of take outs:

• Nearly one third of buyers in 2024 were buying off-the-plan
• Buying off-the-plan means committing to buying a property while it’s still in construction.
• Pros of buying off-the-plan:
  • Only 5-10% deposit required
  • Can lock in the purchase price at current market rates
  • Plenty of time to save as off-the-plan builds take around 18-24 months
  • Off-the-plan purchases = financial incentives & reduced purchase price
  • Enjoy lower maintenance costs & utility expenses all with builders’ warranty insurance
  • Modern designs & amenities are appealing to tenants
  • Off-the-plan tax & stamp duty benefits

Keep reading >>

What does buying an ‘off the plan’ property’ mean?

Buying off-the-plan essentially means that you’re committing to buying a property before or during construction. The contract to buy is legally binding – just as it would be if you were buying a finished house. For many homebuyers, there are some obvious concerns about buying off-the-plan. Number one being you can’t visit the property and see the finishes until it’s completed. But, for many ADF property investors, there are significant benefits to purchasing an investment property in this way.

What are the benefits of buying off-the-plan?

1. Small deposit

With off-the-plan properties, a maximum deposit of 10% is required at the time of signing the contract. The balance is then payable at settlement once construction is complete. That’s usually at least 12 months, but in some cases, it can be years later.

Plus, many off the plan developments offer promotions allowing you to pay a smaller deposit than you’d pay for an existing property (e.g. 5% deposit instead of a 10% deposit).  This is an especially attractive proposition for first home buyers and property investors.

2. Buy now and reap the benefits later

One of the most significant advantages of buying off-the-plan is the ability to lock in the purchase price at today’s market rates. Since property values can increase during construction, you could gain instant equity when it’s finished. This is especially attractive for ADF property investors, because it could mean potential capital growth even before you’ve paid the full balance.

3. More time to save

In Australia, the average timeframe for an off-the-plan build is around 18 to 24 months, obviously depending on the project’s location, size and complexity. This long settlement period allows buyers to save for the final payment and organise a great finance deal. Having this financial flexibility is great for ADF members when postings and deployments affect immediate cash flow.

4. A bigger bang for your buck

Depending on market conditions, with new builds – and especially when buying before construction starts in the early stages on the land development – the purchase price can be lower than an established property. That’s because developers can offer the early stages at a reduced price point early on so they can secure the pre-sales on the project. So, in some situations you can get a brand-new house with all the bells and whistles, for less than you’d pay for an established property that might require maintenance and upgrades.

5. Low maintenance and rental appeal

As we’ve just hinted at, with a new build you can enjoy lower maintenance costs and utility expenses. That’s because newly constructed properties must, by law, adhere to the latest building codes and energy efficiency standards.

For ADF members with demanding schedules or needing to relocate, owning a low-maintenance property will save you a heap of headaches. Also, depending on which state or territory your property’s located in, you should be protected by builders’ warranty insurance. Although every contract will vary, many structural or interior building faults that emerge within an agreed timeframe will also be covered by the builder.

Plus, modern designs and up-to-date amenities also make these properties more appealing to potential tenants. So you’re less likely to have to worry about vacancies.

6. Design input – create the perfect rental

Early commitment to an off-the-plan property will usually allow some leeway for you to personalise the build design. You may get the option to select high-end finishes, choose your preferred colour schemes, or even modify the layout/floorplan.  Tailoring the build in this way can help you attract your desired tenants and ultimately enhance your rental income.

7. Tax and stamp duty benefits

Investing in new properties can offer tax depreciation benefits. These benefits allow investors to claim deductions on the property’s depreciation over time. And this makes your accountant’s job to save you a whopping bill at tax time much easier!

Also, several Australian states and territories provide stamp duty concessions or exemptions for off-the-plan purchases, especially for first-time buyers. These can significantly reduce the expenses you get slammed with when you’re buying a property.

For example, in a recent effort to tackle the housing crisis, the Victorian government announced a significant reduction in the stamp duty payable on off-the-plan apartments, units, and townhouses (that are part of a strata subdivision). The potential savings are substantial. That means if a buyer purchases an off-the-plan $620,000 apartment before construction starts, they stand to save a huge 75% or $28,000! This scheme is valid until October 2025.

Cons of buying an off-the-plan property

Purchasing an off-the-plan property offers plenty of advantages for ADF property investors, however there are also risks and challenges that must be considered. When you’re committing to a property before it’s built, unforeseen issues may arise. Let’s take a look at the cons of buying an off-the-plan property:

1. Being sure of the final outcome

When you’re buying an established home, you can get a pretty good picture of the condition by doing a pre-purchase inspection. [We’ve discussed this in our previous blog post “How to buy well”]. And although many builders have display homes that you can view, with an off-the-plan purchase, there’s no physical inspection of the actual property you’re committing to buy. You’re relying on floor plans, artist impressions, and marketing materials to make your decision.

This is often the most challenging part for buyers who want to experience that emotional connection with their new home but should be less of an issue for investors.

2. Plan and specification changes

Most contracts give builders/owners flexibility to make adjustments, such as altering floor plans or fixtures and fittings. Although some changes are due to council requirements, others changes the buyer might make can create additional costs (Admin fees + materials).

3. Potential construction delays

Like any new build, completion dates could (aka probably will) be delayed. After all, they’re still subject to the same approval processes, weather conditions, supply chain disruptions, and labour shortages. These delays can affect your financial planning, especially if you were counting on rental income by a certain date.

4. Market fluctuations

Australian house prices have shown strong growth over the past 30 years and that’s expected to follow a similar trajectory in the future. However, there’s always the risk that the property market can shift, and values can fall between signing the contract and settlement. If this happens the final valuation may be lower than the agreed purchase price. And that could impact your ability to secure financing. It could leave you in the situation where you’re paying the shortfall out of your own pocket.

At Capital Properties, we work with our clients to ensure they understand property cycles and adopt a long-term investment strategy so you can ride out any market changes.

5. Developer stability

At the end of 2024, many people would be forgiven for being anxious about working with a developer. Since the COVID 19 pandemic we’ve struggled with high material costs and skilled labour shortages – see our recent “Housing construction industry update” blog post. This resulted in over 3,200 Aussie construction firms going into administration in 2024.

If your builder/developer faces financial trouble or goes into liquidation before settlement, the project is likely to be delayed or even abandoned. Although you should be able to get your deposit back, the delay means that you could miss out on alternative investment opportunities.

Thankfully, government initiatives to boost housing supply should help. Overall, they’ve promised a $32 billion spend in specific housing initiatives, e.g.: the National Housing Accord, Housing Australia Future Fund and Social Housing Accelerator. This includes $90.6million towards increasing the number of skilled construction workers – keeping building sites running across Australia.

How ADF members can mitigate risks of purchasing off-the-plan

– Due diligence: Take the time to research the developer, builder, and architect’s track record. Make sure they have a history of meeting the deadlines within budget. Read client reviews and ask them about how the communicate project updates and how they handle issues when they arise.

– Get expert help with the legal stuff: Off-the-plan contracts can be complex, with potential hidden costs like land tax adjustments, project delays, building specification alterations and even changes in government regulations. Make sure you work with someone who’s familiar with off-the-plan purchases. Capital Properties Buyers Agent service is a great place to start.

– Know the market: Locking in a price can be a great deal, but property values might change while it’s being built. To avoid potential pitfalls, it’s essential to keep an eye on the market. That means knowing what’s happening globally, nationally and in the specific investment area. For example, if there’s any potential new developments in the area, you’ll need to consider if the market could become oversaturated and/or the local infrastructure can keep up.

Start by requesting a copy of the latest Capital Properties FREE Australian property market report.

– Have a financial buffer: It’s super-important to plan for possible changes in lending requirements, settlement valuations, or changes in your personal circumstances during the construction period. The Capital Properties Investment Tools & Apps make budgeting a whole lot easier.

Next steps with Capital Properties

Buying off-the-plan can be a strategic move, but careful planning and thorough research are vital. At Capital Properties, we specialise in helping ADF members navigate the property market to ensure their investments align with long-term financial and lifestyle goals. As ex-Defence, we understand the unique challenges of military life and it’s our mission to provide tailored advice and support throughout the purchasing process.

If you’re considering buying off-the-plan, have a chat with our expert team about what opportunities are available to you. Book your Capital Properties Discovery Session today, and let our expert team guide you through the process.

Remember, as a Capital Properties client, you have exclusive access to our Property Investment Tools & Apps and the Pinnacle Support Program, designed to support you at every step of your investment journey.

Note: This information is general advice only. Always conduct your own research and seek independent financial advice before making investment decisions.