Why buying an off the plan property in the current market may be a smart choice
The past 18 months has seen a combination of events that have taken the heat out of the property market. Rising interest rates and economic uncertainty both at home and abroad, has caused many people to sit on the sidelines to see how things play out. Others are making what could quite possibly be a smart decision to buy off the plan property where settlement is a year or two away.
So why might buying off the plan in a time of economic uncertainty make sense?
Buying ‘off the plan’ involves securing an unregistered title property that is yet to be built. Most often the types of off the plan properties that are sold are apartments and townhouses.
When the property market is soft and buyers have the upper hand with more negotiating power, it may not make sense selling your existing property now as you are selling in a depressed market. Buying off the plan provides an opportunity to buy at lower prices today and then sell your existing property in the future, when the property market has stabilised or even strengthened.
Property cycles vary in length but what is guaranteed is that the cycle will continue. And that means, if we are currently in a soft property market, in time it will strengthen, it is just a case of when. Many experts believe that investing in an off the plan property can be advantageous during these market shifts.
Buying off the plan allows people the time they need to prepare for their next move. For some, buying off the plan is not just a move from one home to another, but also a change in location. Indeed, often times, the move is from one state to another.
When selling their current home, buyers considering an off the plan property may want to make renovations to add value to their property. This requires planning with council approvals and the engagement of builders all of which takes time. A delayed settlement on a new property gives the buyer sufficient time to make improvements to their current property and maximise its future sale price.
Another positive in buying off the plan in times of economic uncertainty and an associated soft property market, is that developers may have prices reflective of the current state of the market. That is, lower than what they might ordinarily be. If the market strengthens over the period in which the building is being constructed, the sale prices in the same project of similar properties will most likely rise. In our experience of over 25 years, we have seen this occur on a regular basis, depending on what stage of the property cycle the market is in.
The benefit for off the plan property buyers in a soft market, is that they can secure their property now and if whilst construction is taking place over several years the market strengthens, they will potentially have a property worth more when it comes time to settle and take ownership of it, than what they paid for it several years earlier.
For those buyers who have their money tied up in investments or superannuation or equity in their current home, utilising a deposit bond to secure their off the plan purchase can provide added benefits by keeping their investments working for them or saving them the cost of borrowing the deposit.
