How to buy off the plan without being ripped off

What's not to like about buying property off the plan? You can buy tomorrow's apartment at today's price - a no-brainer because Australian residential property prices always rise across the board. NOT!

Money's not a problem - you need only 10% of the price tag as a deposit.

And if you're an owner occupier, you might qualify for some stamp duty concessions depending on which state your apartment is in. The icing on the cake is a visit to a display apartment on which no expense has been spared - it's sleek, beautifully finished, minimally furnished and you fall in love!

But before you sign any contract or pay any money, take a deep breath and prepare yourself to do a lot of hard work to make sure you're not making a big mistake.

Sure, you can make money buying off the plan, which means buying an apartment before construction has been completed or maybe even started, but it's no sure thing. Especially now with many experts tipping much more modest - or no - growth in residential prices in many areas for some time after the big rises in 2021.

While it would be nice to chalk up a capital gain on your apartment before settlement, and maybe even sell it on at a profit after only outlaying a 10% deposit, most buyers are in for the longer haul.

Most plan to use their new apartment as either a home or an investment and so will proceed to settlement.

Of course, if your apartment is worth less than the agreed price at settlement, you may experience difficulties in getting a mortgage for the full amount you need. Be cautious and use the period between paying your 10% deposit and settling to build a contingency fund to cover any shortfall.

The other major problem is that when your apartment is completed it's not what you expected.

Maybe floor sizes or layouts have changed, and/or the fittings and finishes are nowhere near as glam as those that seduced you in the display apartment.

Even worse, it could have structural issues - think Opal Tower in Sydney's Olympic Park where hundreds of residents were evacuated on Christmas Eve 2018 after gaping cracks were found in the newly completed building, sparking fears it could collapse.

So how can you make sure the apartment you are buying 'on paper', without seeing the finished product, will be to your liking and free of major hassles?

While you can't ever be 100% certain, you can take steps to make this a more likely outcome.

1. Choose a reputable developer and builder

Do some background research on the developer and builder of the complex you plan to buy into and only proceed if you find these are established companies with good reputations.

That way the risk will be lower, plus you're more likely to be approved for finance, as banks prefer to lend on off-the-plan properties constructed by reputable builders.

Also check that the companies have plans in place to rectify any defects quickly. Don't be afraid to ask builders and developers to provide the names of previous clients as references and follow these up.

2. Have the contract thoroughly reviewed

Off-the-plan contracts are often more complex than those for established homes, so make sure yours is thoroughly checked by an expert.

Double-check yourself for clauses that favour the developer, such as those that enable the developer to change the plan, particularly finishes and floor sizes. With fittings and fixtures, make sure you know exactly what you're getting upfront, including brand and model.

Ensure there is a deadline for completion. Also be wary of sunset clauses as some developers have cancelled contracts due to construction running past the sunset date and then on-sold the property at a much higher price. In some states, including NSW, recent legislation means if a developer wants to rescind your contract on the sunset date, it must have your permission to do so.

Ensure that, in the worst case, if you are pushed out of the contract, there is a guarantee stating you will receive your full deposit.

3. Pay attention to the strata fees

These ongoing costs of owning an apartment can be hefty.

While a development with a big pool and gym may seem appealing, the maintenance of these amenities will lift the cost of your strata fees.

4. Conduct a thorough pre-settlement inspection

Enlist an expert to help you accurately check room sizes and fixtures and fittings.

Other checks you should undertake include a flood test on the balcony to ensure water drains away from the apartment and does not pool. And test all power points and the hot water pressure.

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