Should you buy property off the plan?

Buying property off-the-plan has its advantages but it's not a licence to print money as some people may think.

It's important to go in with your eyes wide open, understanding the pros and cons before making such a big investment.

"Buy tomorrow's real estate at today's prices", is a common marketing spiel. The idea that you're locking in a price now and by the time the property is completed you'll have already made a profit is certainly a big attraction.

Property prices don't always rise

Of course, this assumes property prices will rise, which isn't always the case.

For example, on the Gold Coast about $1.3 billion worth of apartments were sold off the plan before the financial crisis (GFC) and were set to be completed in late 2010 or early 2011. Prices have fallen dramatically since then.

According to media reports, many buyers are simply walking away and forgetting their 10% deposit!

Potential stamp duty concessions

One advantage may be stamp duty concessions, depending on the state you live in.

In NSW for example, anyone buying an off-the-plan home worth up to $600,000 will pay zero stamp duty - a saving of up to $22,490. Check with your state or territory office of state revenue to see what concessions, if any, are available.

A bonus, especially for first-home buyers, is that the delay in settlement gives them longer to get more money together, effectively meaning they have to borrow less.

Tax breaks for investors

For investors a big lure is undoubtedly the potential tax savings. Investors can claim significant tax deductions for depreciation on the building and fittings and fixtures.

As a rule of thumb, the newer the property, the higher the depreciation allowance. Rental guarantees are another draw card for investors, because they know they'll get a certain amount of rent once the property is completed.

Keep in mind that the guarantee may have been built into the purchase price and once it expires you might no longer get that amount.

Do your own research

While there's no denying there are advantages, buying a property sight unseen can be a big risk, which is why it's important to do your homework first. Price is a big consideration - you need to make sure you're not paying too much.

Don't rely on what the developer is telling you; make sure you do your own research. Inspect similar apartments in the area and consider price trends.

You should also do some research on the developer. Only buy from one that has a good reputation and who has other properties already completed that you can inspect. You might also ask for references from people who have previously purchased from that developer.

It's also hard to get a true picture of what you are buying just from the plans. You might consider getting an "off-the-plan apartment inspection" offered by Archicentre, which will cost you about $400.

An architect will see the display unit with you and help you assess the floor plan and specifications for the apartment.

"These inspections assist the apartment buyer establish many basics such as whether the display unit they are being shown is the standard unit or the premium unit with the upmarket kitchen and bathroom appliances and fittings, the standard of tiling and even the number of coats of paint," says ACT & NSW state manager of Archicentre, Angus Kell.

It's also vital the contract is as specific as possible - even when it comes to fixtures and fittings such as carpets and blinds.

For example, it should specify a particular brand and model for the oven and not simply state "a stainless steel oven". You should know what is standard and what is an optional extra. Getting proper legal advice before signing a contract is a must.

Get stories like this in our newsletters.