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What To Look For With Off The Plan Property

Written by Kris Wrenn 

After the property frenzy we experienced (especially across QLD) throughout 2020 and 2021, demand has been easing and accordingly prices have stabilised. It’s arguably quite the “buyers market” now in many areas and we expect this to continue for the remainder of this year. It’s at these times it’s especially important to take every extra step possible to make sure you are buying properties that will hold their value during these times and then enjoy strong growth when things take off again.

When it comes to off the plan house and land packages, I believe that these can be a significantly harder market to navigate than established. With established property, there tends to be a lot more history regarding the immediate surrounding area. E.g. surrounding property may be 2 years old, 20 years old or 50 years old and you have the advantage of looking back at the historical growth. Conversely, with off the plan developments there may be little to no comparable sales in the area. Likewise, the infrastructure and amenities around existing property tends to be more established and can form immediate appeal to tenants and owners alike. With off the plan there may be a “leap of faith” to take that the area will develop.

First let’s re-cap on the advantages and disadvantages of off the plan property, then using this, I’m going to list my top 5 most important things to look for with off the plan.

Pros for Off the Plan

1/ NEW property looks and feel fresh and clean. No timber rot, no rust, no smelly carpets, no marks on the wall, no scratches on the timber floors, no cracks in the driveway. If you move in, you know no one has so much as showered in the bathroom, nor sat on the toilet. If you are an investor and you lease the property new property will appeal to tenants for the same reason and you can hope for higher rent and a better standard of tenant. This should still apply for the second and third tenant etc assuming the first ones look after the place.

2/ Depreciation. There are still significantly higher depreciation benefits available for newer property, especially for brand new property and especially within the first 5 years.

3/ Financing. You can use the build time to save a larger deposit, which may eliminate the need for lenders mortgage insurance. Furthermore you can usually earn interest on your deposit. Depending on which state you are in, there are often stamp duty and also first home buyer concessions.

3/ Less to fix. Generally speaking newer property tends to require less maintenance. Air con, hot water systems, etc will have more years on their side, and if the worst does happen will likely be covered under warranty. With established property, no matter how good your property inspector is, there could be skeletons in the closet.

4/ If the project has a long build-time, you can potentially benefit from rising property prices and it may even be worth more than you paid when you come to settle.

Cons for off the plan

1/ Despite what any developer might tell you, off the plan will often be priced “at a premium”. Like a brand new car that falls 20% in value as soon as you drive it home, it’s unlikely to be able to sell an off the plan property for the same price a few months after purchase.

2/ Lack of character. If you are looking at units or townhouses, there is no question that your exact property will be replicated above, below or beside your property. Even with house and land packages, you will often see identical homes side by side. In either case, the drama this creates is that there is little “X Factor” that can be used upon re-sale. Furthermore, when you come to lease or sell the property you may be competing against several other owners attempting to lease or sell their property.

Tip – if buying off the plan, discuss potential changes to your property to stand out from the crowd.

3/ Risk factors, such as

  • the potential for falling property prices in the areas.
  • new buildings or structures going up nearby, looking unsightly or blocking views.
  • Significant delays in build, which could even go past the sunset clause and could mean the developer can avoid selling it to you completion (rare, but it happens).
  • You lose your job and are not able to secure the loan. In this instance it’s possible you may lose your deposit.
  • The developer goes bankrupt and you potentially lose your deposit.

TOP FIVE THINGS TO CONSIDER AND TO LOOK FOR IN OFF THE PLAN PROPERTY

1/ Okay to be fair this applies to established as well but it’s the most important factor it cannot be left out. We have all heard the phrase Location Location Location. For me this is the same as saying Land Land Land. The fact is that Land, where buildings will only ever depreciate, will only ever appreciate. But some land will appreciate more than others. Faster appreciating land will be driven by:

  • Proximity to a CBD, due to the job opportunities.
  • Proximity to something else, such as a beach, a park, or a train station.
  • Being in an already affluent area.
  • Gentrification, with wealthier people moving to the area, renovating or rebuilding homes.

If you are looking at a unit, although you will only own a small piece of the land it is still important. You still want something unique with a point of difference (views of the city?). Make sure the unit is significantly cheaper than houses in the same area.

2/ Amenities in the surrounding area. Are there sufficient schools, transport links, parks, hospitals, cafes/restaurants, leisure activities. Very importantly, what can you walk to? … check the property’s “Walk score” on website www.walkscore.com. Being near a train line is great, but of course, you don’t want to be too close. I think anywhere between 300m and 1km can be good, so let’s say 500m to 600m is the sweet spot. In summary, even though you’re buying new, you are best off looking for new in as established an area as possible.

Tip – avoid new land developments where the only thing nearby is a highway! These pop up all the time and they do so because the land is cheap.

3/ Choose a good developer/development. This will require time and research and you need to look at their previous projects to make sure that what they sold on paper is what came to fruition. Google is a great resource to make sure they are a solid developer with good reviews, but even better … check with Hudson … we are in the know! Does the development offer something different … or a village atmosphere? Finally, it goes without saying that the developer should not be pressuring you in any way.

4/ Floor plans. You are buying “off the plan” … you need to study that plan in detail and ask yourself Does it work? You should be seeing lots of squares and rectangle shapes, not triangles and rhombuses. The latter will usually mean wasted space. Does the lounge/dining allow for a large enough living space, with a family sized dinner table? Are the ceiling heights at least average, preferably higher? Will an undesirable location cop the western sun in the afternoons? Is there enough storage space?

Tip – as mentioned above, talk to the developer about possible changes to the floor plans. You might forego a walk in closet in favour of a larger bedroom/lounge. There may be a space to allow for a study area or a fold out bed on the wall for guests.

5/ Financing and contract conditions. Does the build time suit you and is the sunset clause reasonable? Will they pay interest on your deposit? Engage a solicitor that specialises in off the plan property in the State in question. Our finance director Brendan Gilmour can also help you with this as well as ensuring that your finances are in order.

If you are buying an off the plan property, or any property for that matter, feel free to give Hudson a call today and discuss it with one of our property specialists.

 

 

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