First home buyer – good points and bad points about off the plan

Pros and cons of buying off the plan

Many young people, when buying their first homes, they would like to venture into the thought of buying off the plan property. What is acquiring the off the plan property?

Buying the off the plan property involves a developer who wants to build an apartment, and might need to borrow the construction fund from the bank, hence as part of them obtaining the construction fund from the bank, they need to sell a targeted percentage of the units before construction. Therefore they usually will engage off the plan property sale, and they regularly will engage a real estate agent to conduct the process.

Buying off the plan property involves a potential buyer, sometimes young people who want to buy that first home or first house. They would be attracted to that off the plan property, and would then sign the sales contract. After a certain stipulated cool-off period, they would later pay the 10% property value as the deposit, along with the stamp duty to a trust account held by the conveyancer or lawyer. Then they need to wait for 1 to 3 years, or sometimes longer for the development to finish, and wait for the developer to notify them of the exact settlement date. Hence it is essential to remember for off the plan property. The settlement date can sometimes be uncertain.

Buy off the plan has its risk and benefits. Hence it is essential to understand the associated risks and benefits, before making a decision.

Benefits

Leverage

When you are buying the off the plan property, you might be able to commit only a small amount of fund 10% of the property value to buy a property which is to settle in the future. Hence you can save up more to go toward the settlement.

Lower property price

Sometimes, if you get them off the planned project early enough, sometime before the development begins, the developer might be able to give you a discount, a discount of the property price. Hence you might be able to get a lower-priced property price.

Capital growth

There is a possibility that after you had signed the contract, and waiting for the property to complete. The property price sometimes would increases in value in the future. However, this will generally happen in the booming property period. It is also important to remember that the property price might drop as well.

Interest income

Some property developers would offer an alternative arrangement for you, hence rather than you use your own money to pay the 10% of the property price. Some developer would agree to accept the bank guarantee from your bank to use it as the 10% deposit of the property price. Hence the money would stay with you and earn some more interest income.

The flexibility of the design

Sometime when people, especially young people, were buying the first house, they would like to have control over the final design of the house. The off the plan property would offer that flexibility; some developer would allow you to input your thought into the design of the house.
Off the plan property also carries with itself the risks, and some of the risks are quite high.

The developer may go bankrupt

The developer sometime would go bankrupt, and once that happened, it will depend on your sales contract, it would depend on the conditions in the contract to ascertain whether you will be able to get the money back, which include the 10% deposit. Also, when that happened, then if the overall property market value goes up, you would lose that opportunity to secure that property at a lower cost at the time of the contract date.

Fall in the property value

When people or young people buying the first house, and when they buy the off the plan property, they would often expect the property price to increase, however, sometime after the park, when the valuer of the bank goes to the valuation, the property value might fall. Hence the amount of borrowing might increase, meaning you might need to pocket more money to settle the property.

The difference in the quality when complete

When you are buying the off the plan property, it would be different from purchasing an already completed property. For an already completed property, you would be able to inspect the house, and understand the condition of the house, whether you like it or not. However, for an off the plan property, you would not know it until the completion date, and by then, you might not have many choices but to settle or cancel the contract. If you are to cancel the contract, then there might be a large amount of fund or penalty you might need to face.

Borrowing power might change

When you are buying an established property, your bank would be able to do valuation of the property, and you would be able to quickly provide all the up to date payslips and other lending requirements to the bank, for them to make a decision.

For Off the Plan property, you might need to wait for for1 to 3 years for it to complete. Only after the completion fo the property, then you would be able to apply to the bank for formal approval, by which time, the bank might change its lending policy, or you might change job. Your income evidence might not be acceptable, or if your security might not be adequate to the bank.

Also, it is essential to consider the first homeowner grant and potential stamp duty concession, and those would differ State from State. The first homeowner grant and the stamp duty concession would mean that you might need to prepare lesser at the settlement.

It is also vital to engage a good mortgage broker to assist you when buying off the plan property. Because sometime the developer might give you short notice when the property is finished and ask you to settle. By then, if you have a responsible and responsive mortgage broker, then he or she would assist you in deciding under a tight deadline.

EG Home Loan proud itself and always strive to be one of the most professional, honest, responsible and responsive brokers in the marketplace. It is our mission to assist you to obtain a lower interest rate for your home loan, and also to work with you closely; hence you can settle that first home smoothly.

If you are a first home buyer, and would like to find your eligibility to borrow money, please give Cindy a call on 0403-418-758, or send us an email to hello@endurego.com

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