Top tips for investing in off-the-plan properties

By Bianca Dabu 29 December 2020 | 1 minute read

The past year saw a boom in off-the-plan purchases as border restrictions continue to limit movements for investors and home buyers alike. How can investors make off-the-plan purchases a positive experience?

Top tips for investing in off-the-plan properties

Despite the headwinds brought by the COVID-19 outbreak, property markets remained resilient, with buyers taking advantage of government incentives and record-low interest rates to step foot into the market without burning a hole in their pockets.

According to Preer founder and managing director Lei Feng, the boom in off-the-plan purchases reflects the ongoing demand for property despite restrictions related to the pandemic such as border closures.

“Australians are returning to the property market with gusto, thanks to a cocktail of low interest rates, government incentives and renewed enthusiasm for bricks and mortar.

“Off-the-plan properties, including townhouses and apartments, have started to heavily populate real estate sale sites,” he said.

However, as in all investment strategies, buying off-the-plan could head south if the buyer is unprepared, particularly first home buyers.

“Buyers need to be aware of the pros and cons involved. This ensures the transaction is a good process for everyone involved.”

Mr Feng shares his top tips for buying off the plan:

1. Get in early

As in most things, the early bird catches the worm when buying off the plan, according to Mr Feng.


“Getting in early means you have pick of the bunch and can choose the place with the great view, northerly aspect or furthest from a busy street.

“You can also often make special requests regarding the colours, finishes and layouts in order to fit with your exact lifestyle needs as it is being built as new. The earlier you can engage with a property developer to explore an off-the-plan purchase, the more time you’ll have to make these requests for your first home.”

2. Avoid the element of surprise

Since the buyer cannot physically walk through, touch or see what they are buying, they need to make sure that they are aware of the specific fixtures, fittings and finishes that will go into the house, down to the brands that will be used, Mr Feng advised.

Further, they also have to make sure that all of this information is included in the contract.

“It’s worth remembering that the photos in the glossy developer’s brochure aren’t necessarily real – they’re an artist’s impression or an architect’s render. In reality, the property could be quite different.

“Sometimes, what you expect to be can be different to what you actually get. That’s why it’s important to do some due diligence on the developer, architect and builder. Look at other buildings they’ve completed and check to see if there have been any previous problems,” he highlighted.

3. Consider market trends

Mr Feng also advised prospective buyers to do research in terms of market movements in order to be able to minimise risks and maximise returns once the property is built in eight to 12 months.

“When you buy off the plan, you don’t know what the market is going to do. Will it go up, will it stay flat or will it go down? By the time you come to settle in eight-12 months, the market could have changed.

“If the overall market drops in value, you might be burdened with a property that you’ve overpaid for. Allow yourself enough wiggle room to take into account market trends and shifts. On the other hand, if the market grows between paying your deposit and settling the property, that’s capital growth you’ve earned without even having a loan to pay any interest on!”

4. Be wary of hidden commissions

Buyers must also be wary of hidden commissions that might come with buying off the plan, Mr Feng said.

“The challenge of that is when a valuer comes along to value the property on your behalf, they actually know that there are marketing commissions and sales commissions built into the actual purchase price.

“If that’s the case, they’ll often provide a discount on the property valuation that reflects that. So maybe, you’re buying it for $500,000, they might come in at a valuation of $450,000, which means you need to make up the difference to be able to settle on that property,” according to Mr Feng.

5. Pay attention to the sunset clause

Buyers are also advised to check the “sunset clause” in the contract as another way to protect their money.

The sunset clause basically indicates the date in which the project must be completed, otherwise the contract may be rescinded and the deposit returned to the buyer.

“Be alert to contracts with a super long sunset date compared with the scale of the project. For example, if you are buying into a small project with three townhouses, it’s unreasonable to have a 48-month sunset clause.”

6. Secure loan approval

Unlike buying established homes, buying off the plan often means that the developer won’t scrutinise the buyer’s personal finances as much.

“Generally, as long as you have a 10 percent deposit, the developer will hand over the contract,” Mr Feng said.

“Get your finances sorted upfront before you sign the contact. If you don’t and you encounter issues and you are unable to settle, the developer could seize your deposit, and if it sells for less than what you’d agreed to pay, the developer could sue you.”

7. Review government incentives and grants

To improve borrowing capacity as well as their buffer, prospective buyers are advised to take advantage of government grants and incentives when buying off the plan.

“Check your state or territory government’s website to find out if you’re entitled to a reduction on stamp duty or new home grant. First home buyers might even have additional grants available, so make sure you look into what you’re eligible for.

“For example, in Victoria, if you are purchasing a brand-new property below $600,000, you’ll get $10,000 first home buyer grant from the government, and on top of that, there is no stamp duty charge. Therefore, you could save up to $43,000. The savings can be quite significant for a first home buyer,” according to Mr Feng.

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Top tips for investing in off-the-plan properties
Top tips for investing in off-the-plan properties
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