Purchasing off the plan – what’s the go?

So you’re considering purchasing a property off the plan? Stamp duty savings are now only available for owner occupiers, so if you’re purchasing an investment, stamp duty is payable on the full purchase price. If you are purchasing as an owner occupier, you will only pay duties on the value of the property at the time of purchase. This means if construction is yet to start, the duties are only paid on the land value for your particular site.

Consideration must also be given to Valuation Risk. If the lead time until completion of the property is greater than 6 months, there is a possibility that the value of the property will drop. We saw this in many cases in the Docklands a few years back. A property was purchased off the plan, the purchaser had a set amount they figured they would contribute to the settlement funds – ie 10% plus stamp duty. $500,000 purchase price – purchaser has $50,000 + $25,000 for stamp duty and costs which means they’re contributing $75,000. The purchaser would need a 90% loan – in this case $450,000.

When the property is valued upon completion 12 months later, the valuation comes in at $400,000. This means the maximum 90% loan can now only be $360,000, leaving the purchaser $90,000 short to settle. In some actual cases, the purchasers just had to walk away forfeiting their deposit.

So if you are going to purchase off the plan, the timeline on completion of the project is crucial. Obviously the sooner the better. The further away – the greater the risks.