Buying ‘off the plan’ is jargon that is probably more familiar to those in building industry circles.

But it refers to the transaction which sees a prospective homeowner or investor purchase a property – more often than not an apartment – from a developer/builder before it is constructed.

This allows the buyer to obtain an apartment by putting down a deposit (usually five per cent) and then paying the balance of the purchase price when it is completed, and – hopefully – worth more than it was at purchase time.

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It sounds enticing, but buying off the plan comes with a warning for investors.

According to a recent article in the Australian Financial Review, new apartment values in Melbourne and Sydney are falling 20 per cent between purchasing off the plan and taking the keys.

Research by WBP Property Group showed that the value of an apartment was below the purchase price at the time of completion almost 44 per cent of the time in parts of the nation’s two biggest cities.

The lesson here? Do your research.

What you see

Prospective buyers can view rendered images or take a virtual tour of the proposed apartment complex to get a feel for what their property will look like. In some cases they can visit a display apartment set up on site or at another location.

Managing director of the national real estate franchise, PRDnationwide, Tony Brasier, says buying off the plan has advantages for both homebuyers/investors and is particularly popular in the central business districts and inner urban areas of Australia’s capital cities where many apartment towers are sprouting.

Worth the investment? Image: Shutterstock

“The real saving in buying off the plan is that they (the purchaser) can buy now and settle in say two years’ time when the market is stronger,” Mr Brasier says. “They then have the capacity to make a capital gain because of the increased value of the property.

“Yes, you are punting the price rising through the construction period prior to completion. And quite a large percentage of those buyers end up selling them after they’re completed to make a capital gain.”

What are the protections for prospective buyers?

The former Real Estate Institute of Australia president says many banks/financial institutions will not provide finance to developers to build these type of projects unless a substantial number of the proposed apartments have been sold beforehand. But he says even if the project does not proceed “purchasers would be entitled to a refund of their deposit”.

In Victoria, the Real Estate Institute of Victoria’s communications, policy and public affairs manager Paul Bird says the main advantage of buying off the plan is the saving on stamp duty.

“This can be gained by purchasing prior to the start of construction of new apartments in particular,” Mr Bird says.

“The other advantage for people buying off the plan is the opportunity for the purchaser to select their own colour scheme and fixtures and fittings. This is especially important, as it is something that people don’t always get when buying a new property which is already built.”

Mr Brasier adds that in New South Wales first homebuyers also get “a government concession on stamp duty and may qualify for a first homebuyer’s grant” when they purchase off the plan.

Tony Brasier is a distant relative of the author. 

This story was brought to you by The New Daily using data and other information from its real estate content partner, realestateVIEW.com.au