Off-the-Plan Apartments Melbourne: Risks, Rewards, and What Buyers Need to Know

As property prices continue to climb across Australia, many prospective home buyers and property investors are exploring alternatives to traditional property acquisition. One increasingly popular option is buying “off-the-plan.” Unlike other property acquisition methods, buyers of off-the-plan properties make decisions based on architecture designs and floor plans, rather than on finished and ready-made structures. And like any other property transaction, this comes with risks and benefits. Equip yourself with the right information to help guide you through the decision process of whether to invest in off-the-plan apartments in Melbourne, with insights from the team at PDG! 

What Does It Mean to Buy Off-The-Plan?

Buying off-the-plan means purchasing a property’s design plans and permits that have not yet been built or completed, rather than a finished property that can be physically viewed. It’s an approach to property commonly offered for housing developments, apartment blocks, or villa complexes.

Typically, developers start by purchasing land, and then planning and designing the project. Then, they market and advertise the future units to potential buyers. Although buyers are not able to see the unit, developers often provide extensive information about the build including floor plans, interior design and architecture, and the size of the property among other key details. In some cases, developers offer customisation options, such as the choice of room configurations and views.  

To secure the property, buyers typically need to deposit 5 – 10% of the property’s sale price. The remaining balance can be divided into installments, which are typically due at various construction milestones, or it can be paid in full upon the project’s completion.  

The settlement period can span several years, depending on the scale and size of the development. It can also be affected by factors such as weather, availability of materials, suitable tradespeople, and council regulations. 

The Rewards of Buying Off-The-Plan Properties

Depending on how the property market is behaving, one of the biggest advantages of buying off-the-plan is often in a discounted price – especially if the property’s value rises in the years of construction. However, this is highly dependent on the market, which can be quite difficult to gauge in its composite of socio-economic and political influences. Nonetheless, there are several tangible advantages to this approach to tenant and property management:  

• Government Grants and Schemes: Most Australian states and territories offer first home buyer schemes for new properties. You can also apply for stamp duty exemptions or grants. 

• Potential of property appreciation: Over the years of construction, the value of your property may increase depending on market trends. This increase can provide instant equity gains and can mean a lower loan-to-value ratio on your property.

• Extended time to arrange mortgage: Given that the rest of the property payment is typically due at the completion of the project, you have additional time to organise a mortgage with a lender. This is especially beneficial if you are unable to pay the full amount upfront, or if you expect potential financial windfalls in the near future.

• Tailored designs: You may have the opportunity to influence design choices such as finishings and fittings, although this depends on the developer.

• Defects liability period: Many developers offer a defects liability period which often covers 12 – 24 months – during which they will repair any construction defects identified after the handover.

The Risks of Buying Off-The-Plan Apartments in Melbourne

When buying off-the-plan, it’s crucial to conduct thorough due diligence due to its inherent risks, which include:

• Development delay or cancellations: With extended construction period, many hiccups could arise, such as material or labour shortages, or broader macro-economic factors. These can delay or even lead to the cancellation of the project.

• Builder bankruptcy risk: If the developer goes bankrupt before the completion of the project, this could lead to significant delays. As for your deposit, you will be able to get it back eventually – however, the process can be lengthy and tedious.

• Expectation failure: The property, upon completion, may not meet the expectations you had in mind when purchasing it.

• Limited negotiation power: During purchase, you have limited ability to negotiate terms and conditions in the contract.

• Potential for depreciation: It’s possible for the property to be worth less than what you paid for it upon completion. Factors such as market conditions, oversupply of properties, or the quality of the construction can all affect the property’s value. 

How to Reduce Risk When Buying Off-The-Plan?

Due diligence is your most powerful ally against the risks of off-the-plan purchases. Make sure to research the developer and look for a proven track record of completed projects. Also, read your contract carefully. You can also enlist the help of a lawyer to ensure that there are clauses in your contract protecting you from significant financial risk. 

Each state and territory in Australia also has legislation to protect buyers from unfinished projects. Carefully research and read about what consumer protection laws are in your area, and consult a lawyer with experience in these matters if you are unsure.

Is It Right For You?

A new home is an excellent investment for your future, and buying off-the-plan can provide significant benefits at any stage of life. However, to ensure you’re getting the best value for your hard-earned money, it’s important to perform your due diligence. Take the time to choose the right package and choose a reliable developer like PDG. If you’re considering investing in off-the-plan apartments in Melbourne, contact us today to learn more about how we can help you achieve your vision and goals.