Buying Off The Plan

 

What does this mean?

  It means buying property that has yet to be built and is popular with apartment developers operating in inner city areas.  The developer purchases land or an existing property which has planning permission to demolish and rebuild.  A display apartment is then usually constructed on site and an advertising campaign commences to sell the proposed apartments.  If you purchase one of these, it will usually be two or three years before you can move in or rent out the apartment.

 

What Do You Need to Provide?

The developer will need a completed contract of sale and a 10% deposit.  You pay the remainder when you receive the completed apartment.  You could provide a deposit bond instead.

 

What's a Deposit Bond?

If you meet certain financial requirements, a lender may issue  a deposit bond in which case you need not provide any capital up front at this time.  The lender howeve rwould require proof that you have enough income to service all commitments and ownership in certain assets.  The lender is effectively underwriting, or providing a guarantee to the developer that the deposit will be paid.

 

What's the Upside?  What's the Downside?

Ifyou secure a deposit bond, you are locking in ownership without parting with any cash right now.  If, while the apartments are being developed over two or three years, demand and thus price rises, you could profit without any outlay.  The apartment could be onsold pre-delivery and the profit realised. 

However, property prices can go down.  The value of the apartment may drop over the development period.  The developer may encounter difficulties or go bust.  Do your careful research!

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