When purchasing property, one of the things you’ll probably ask yourself at some point is should you buy an existing property or should you purchase a property off the plan. It’s a question that a lot of people struggle with. The fact is, there are a lot of things you need to consider and think about. So if you’re looking to learn more about buying off the plan, keep reading.
Starting off with the benefits of buying off the plan as well as why people seem to get so excited about this type of property. One of the most exciting emotionally things as a human being, is buying something brand new. It is extremely exciting just for the fact that it’s brand new. It’s all about really nice fixtures, really nice fittings and totally brand new everything. Also, chances are that you probably haven’t moved into a house, lived in it and be the first person whose lived in there.
To get something that’s brand new versus something that’s existing, old and a bit worn down is obviously very exciting. It makes you feel good about yourself and your place in society. There’s also a lot of marketing hype around newly built properties. They have signs, sales people, and models of it which can be very exciting to try and get the best in terms of property.
There’s an opportunity to lock in prices.
You purchased the property and it might be a year or two before that development is finished but you signed it a year or two ago and you get a price at that point. A deposit was put down but obviously you don’t assume a loan for the development until the property is complete and you own it yourself.
There’s also an opportunity for depreciation because it’s a brand new property.
You can depreciate a lot of things and that can help for tax purposes for some people. Those are a few of the exciting things and why people think about it, but there are actually a lot of risks when buying off the plan properties that people don’t think about. This is only if you will use your new property as an investment, it won’t apply if you intend to live in the property.
Risks you should be aware of
There are actually two types of risks. The risk when buying the property and the larger risk after you’ve purchased the property. Some of the risks when purchasing the property includes inflated prices. One of the draw cards of off the plan property is that you can lock in a price now and if the market goes up then you’re buying a property at less money and therefore you’re going to have a capital gain instantly as soon as you settle. But in a lot of cases, they’re actually taking in the potential growth of an area into account of the sale price of the property.
If the property development is going to take two years, they’re likely going to predict the worth of the property in two years’ time. They will try and sell you the property today for what it’s going to be worth in two years’ time if the market performs as expected. While if the market goes down and you’ve already paid the price for what it’s going to be worth in two years, you can actually be behind and the property you purchased is overvalued.
You just really need to be careful and savvy. The best way to do this is rather than just looking at the property, look at the prices that they give you and comparing it to other prices in the same off the plan construction, go and look for the property on the market today. Specifically look for existing properties similar to what you are looking for in off the plan, and compare them to each other. Those are the properties you’re going to be competing with when you own your newly built property. It’s important to know the price difference whether you’re overpaying for the property or not.
You also need to be careful when buying during falling property prices. There’s also rising interest rates that can happen in between when you decide to purchase the property and when the construction’s finished, your financial situation may also change which affects your ability to purchase the property.
The biggest risk you actually have to consider is the potential for oversupply and competition. That’s not a situation you really want to be in. You want to be in a situation where you can charge more because there’s so many people coming through the doors. Oversupply can be a big issue and it’s something that you need to think about.
Buying off-the-plan can be an exciting and beneficial venture. But be sure to do your own research and seek professional advice to avoid or minimise risks at all costs.
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