05 Sep What to watch out for with ‘off the plan’ – Shannon Davis
Buyers Agent Shannon Davis has some good advice if you are considering buying a property off the plan.
Kevin: We hear a lot about buying off the plan, whether it’s the right thing to do or the wrong thing to do. Well, let’s get a bit of on insight now. Shannon Davis joins me.
Shannon, just give us the tips and traps for buying off the plan.
Shannon: There’s no uniform rule across the whole buying off the plan space, but if a person wanted a place for living in or investment, there would be two different thoughts I would give there.
I think first off, with off the plan, it’s a long period. You have a deposit and you usually wait until three years for completion, and a lot of things can happen in that time. The market may rise, the market may fall, and you have to remember, you’re paying not only a developer but a builder, and then usually an agent – and their commissions are more – and sometimes a project marketer.
So, all those middle men’s commissions add up and it proves to be quite an expensive buy.
Kevin: Shannon, are there good tax reasons why you would want to do it?
Shannon: Oh yes, definitely. With the new rules under the Budget, new property gets a level of depreciation that some existing properties don’t.
But buying for tax reasons is probably putting the cart before the horse, Kevin. I think, first and foremost, you want a property with good owner-occupier appeal and a little bit of scarcity. If you’re one of, say, 150 units with the same sort of outlook and layout, there’s not much scarcity for that property, and that’s what goes against you when you buy into those off-the-plan apartments.
Kevin: We hear some horror stories about off the plan in terms of buying with the developers profit in it and by the time you settle, it’s worth less than what you paid for, Shannon.
Shannon: Yes, that’s when there are some top-ups there. With a lot of foreign buyers in these complexes as well, whilst they might forfeit their deposits, it’s going to be hard to go after them legally, with some of them being offshore.
You also run the risk of what’s called a sunset clause. So, in the event, say, you have a real boom market and the developers have sold it to you too cheaply over that one- or two-year period that prices have gone up, in some states and territories, they can actually renegotiate the property and sort of gazump you and resell it for the higher price.
So, you’ve had all your money tied up for all that time, and you don’t actually end up with an apartment.
Kevin: What would be your advice to anyone who does want to buy off the plan? And obviously, there will be people who will. What sort of due diligence should they do, Shannon?
Shannon: Yes, I think new is always an attraction to some people, and it’s more contemporary living. But look, try and keep your numbers down. Go for the more unique and boutique complexes.
A lot of those things are gimmicks, such as your lift, gyms, pools and spas, rooftop cinemas. So, that’s really going to drive up your recurring costs, and I don’t think they get utilized as much as people think they do.
So, a little bit more substance and less style, and try and keep it unique and boutique, and you might do better.
Kevin: What about some of the finishes? The contracts can be quite complex, can’t they?
Shannon: Yes, they can be, Kevin. You have got to watch out for what the finishes are. And once you enter into it, you’re stuck there, and you’re not getting out of it unless you forfeit your deposit, and even then, it’s hard to get out of.
So, you need to get the legal advice and go through all the specifications and clauses to protect your interests.
Kevin: One other point too: I guess not all solicitors are the same, are they? There would be some who would be more skilled at off-the-plan contracts, than others, Shannon?
Shannon: Yes, definitely. And more property-savvy as well. A good part of your team is a solicitor who’s used to the conveyancing laws and what goes on in a negotiation.
Kevin: Good stuff, Shannon Davis. Thanks very much for your time, Shannon.
Shannon: Thanks, Kevin.