Tips for Investing in “Off The Plan” property

By Michael Poynter

Buying Property “Off the Plan”

There are several things to consider when purchasing new property. The following are a few things to consider and has been generated from the experiences of many.

i)Financial Incentives

Off the Plan purchases (“OTPs”) traditionally carry low stamp duty costs (as duty is based on the land component which is generally not significant) and often also comes with incentives in the form of rental guarantees. Building depreciation is a considerable tax incentive as well.

As your financial adviser will no doubt support, never buy a property for tax or short term saving considerations. Remember, the market has a way of finding equilibrium and competitor purchasers  have no doubt factored in the benefits too, putting a natural upward pressure on the price!

ii) Development Quality

Like any significant asset purchase, make sure you do your due diligence. Just because it is new, don’t make any assumptions about the quality of the property.
Review some of the other projects completed by the developer and get some feedback on their resale value and building quality.

iii) The Contract

OTP contracts are often confusing and will deal in a range of scenarios surrounding completion dates and contingencies for construction overruns amongst other things.
It is important to also check any restrictions on the title that may limit tenancy profile.
Make sure your solicitor reviews the contract before you commit to the purchase.

iv) Finance and Settlement

OTPs are not always the darling of banks and mortgage insurers. They often raise concerns about issues such as high density apartments, city locations or over supply. Make sure you check a financier willingness to support your property before committing.

Another potentially stressful element is the Registration of the Plan of Sub Division. Typically, once this is done, you have 14 days to make settlement. However, most financiers will want a final  valuation after Registration, meaning finance is not unconditional, leaving a rush to make settlement including document preparation.

About Michael Poynter….

 Buying Off The Plan Property

Diana Lvova – One World Group

Diana Lvova – One World Group

Tips for buying “off the plan” property

By: Whitehouse Capital Partners

If done correctly, an off the plan purchase can be a very rewarding and lucrative experience and can assist investors in creating wealth through property investment.

Critical to success in buying off the plan is to do your homework and research – read read read!  Don’t rely on other people’s opinions; look for the hard unshakable facts.   There are a number of property research houses that offer market research, some of these charge, others offer free research.  All product that Whiterock promote is extensively researched from a macro to a micro level with all information sourced, making it easier for our investors to gain a better understanding of the market that they are considering investing into.

Research and due diligence are critical and I would advise prospective investors, for projects in their state and interstate, to research the market, as well as stock in the market, to get to know the suburb and location as well as the demographic of the suburb.

Items to consider should include rental yields; typically rental yields should be around 5.2% (as a rule of thumb), however these yields may not always be achievable.  Melbourne currently offers investors yields of between 4.5 and 5% , Sydney typically offers yields slightly higher at 4.75 – 5.2% and Brisbane yields are typically 5 – 5.5% for off the plan product.

 I always advise investors to request research, ask the vendor or marketing agent to provide you with sales evidence in the area to ensure that the pricing is market related.  Too often people get so caught up in the hype and are scared to miss out on an opportunity that that ignore these fundamentals.

There is nothing wrong with diversifying your investment portfolio interstate as there are benefits to be had from a well diversified portfolio

A 10% deposit could possibly double in 2 – 3 years should the value of the property increase by 10%.   Should you use a deposit bond or bank guarantee your returns can be even better.

Don’t ever be sold a property on the basis that you will be able to sell on at a profit immediately on completion.  Property, like any investment can move up or down in value and we always advocate a medium to long term hold.  Many investors have been burnt by buying and expecting to sell immediately it is completed.  Beware of agents that advocate a “quick flick” as a sales strategy to get you to invest.

Check to see if the developer has funds secured and the capacity to complete the project.  If the project does not complete, then your deposit should be safe if it has been held in trust.  Your loss would in this case be the opportunity cost of the project not completing. The cost a deposit bond may be forfeited if the project does not complete.

Be aware that the project may complete earlier or later than expected due to unforeseen delays.

Avoid being taken up the by all the hype surrounding the marketing.

Plan ahead:  have the finance ready in time to complete the sale and organise for the management of the property on completion.

Consider the property cycle when buying off the plan.  Each state may be at a different stage of the property cycle.   You want to consider where that particular market will be in a few years time when your property completes.

  Tips for buying “off the plan” property

 Stamp duty savings with off the plan property

By: Whitehouse Capital Partners

Currently NSW property investors that purchase off the plan are entitled to a 100% stamp duty saving for new property costing up to $600,000, provided that construction has not commenced and that contracts are exchanged before 1 July 2012.  Where construction has already started, then there may be a limited stamp duty saving of 25% – see www.osr.nsw.gov.au -home builder bonus fact sheet.  There are terms and conditions that apply and investors should make their own enquiries.

In NSW stamp duty is generally payable within 12 months of exchange of contracts or when the project completes, whichever is the former.

In Victoria there are substantial stamp duty savings available for off the plan property purchases.  The Victorian Government, in an attempt to encourage new development, has reduced stamp duty for purchase of property prior to it being built.  As construction of the development takes place the rate of stamp duty increases incrementally until the building is complete at which point the full rate of stamp duty is applied.  The greatest concession therefore is achieved before construction commences.

Transfer duty (stamp duty) in Queensland is payable for off the plan purchases at settlement.

For more information on other states – see The Office of State Revenue (OSR) web sites for each state.

  Stamp duty savings with off the plan property

 Why does  “off the plan” property sometimes have a bad reputation?

By: Whitehouse Capital Partners

This has been created by developers marketing projects at highly inflated prices to unsuspecting investors and investors not conducting sufficient research before investing.  Further, investors then don’t having the financial ability / capacity to complete at settlement and as a result have to forfeit their deposits.

From a personal point of view I have invested in numerous properties off the plan in Sydney, Melbourne and Brisbane, all being positive experiences.  I believe the secret here is in knowing what you are doing or relying on the expertise of those that have done this many times before and have the necessary experience to consider possible pitfalls.

If something looks too good to be true, then it probably is.  I believe that one should go with your “gut instinct”, which should then be qualified by reliable and transparent due diligence and research, something that Whiterock Capital specializes in.

One of the most import issues in my mind to consider when purchasing off the plan is to ensure that pricing is in line with the market and that you are not paying an inflated price 

This has been created by developers marketing projects at highly inflated prices to unsuspecting investors and investors not conducting sufficient research before investing.  Further, investors then don’t having the financial ability / capacity to complete at settlement and as a result have to forfeit their deposits.

From a personal point of view I have invested in numerous properties off the plan in Sydney, Melbourne and Brisbane, all being positive experiences.  I believe the secret here is in knowing what you are doing or relying on the expertise of those that have done this many times before and have the necessary experience to consider possible pitfalls.

If something looks too good to be true, then it probably is.  I believe that one should go with your “gut instinct”, which should then be qualified by reliable and transparent due diligence and research, something that Whiterock Capital specializes in.

One of the most import issues in my mind to consider when purchasing off the plan is to ensure that pricing is in line with the market and that you are not paying an inflated price.

 Why does  “off the plan” property sometimes have a bad reputation?