The Risks In Buying Property Off The Plan
Much to my surprise as an adviser buying of the plan continues to be a popular strategy for new investors, but do they really understand the risks involved? Whilst the excitement of being able to choose your floor plan and color schemes may seem appealing, the end result is often less than desired and there are a number of common pitfalls you need to be aware of.
The following Risks need to be considered:-
- Falling property market – There is always a risk when locking into a contract that you may pay too much for the property if the market falls between the exchange of contracts and the building completion.
- Non-Completion of Project – If the builder or developer goes bankrupt or into liquidation prior to completing the project, what are your options? You need to consider whether you get your money back and what guarantees are provided within your contract
- Builder / Developer Biased Contracts – Often the contracts are complex with many inclusions to protect the interests of the builders. It is important to have the contracts checked by a professional and negotiate all sections that are not favourable to the purchaser. We were was recently approached by an investor seeking assistance with their off-the-plan contract. Unfortunately, upon reviewing the contract it was totally builder biased and there was no ability to negotiate as the contracts were already signed.
- Failed Expectation – Until you see the finished project, you will not know if the building will live up to your expectations. It is important to visit other projects completed by the builder as this is the only indication of what to expect. Ultimately it comes down to price. The builder / developer are looking to make a profit therefore if you buy a supposed bargain, the quality may be compromised.
- Lost Opportunity – When locking into a long contract for your property to be delivered, there is always the risk of lost opportunity on other investments.
- No Unique Features – When looking at property prices over the past 20 years we have always found unique properties always outprice modern off-the-plan purchases. Buyers value unique features within smaller blocks and are willing to pay a premium for these types of property.
- Large Number of Apartments – When you buy into a large development, you risk your property being devalued by others within the block being on the market at the same time. If an identical apartment within the block sold for a lower amount, then this will affect the value of your apartment. The same rings true when renting your property as prospective tenants will compare your rental price to others within the block.