Apartment Hunting? Risks to Consider Before Buying Off the Plan

Understand the Price You Might Be Paying

A consideration of buying off the plan is the price. OTP properties are often based on the developer's projections of what the property will be worth upon completion. This means you could be paying more for the property than its current market value.

Beware of Oversupply in Certain Locations

Location plays a key role when purchasing any property, but it's particularly critical when buying off the plan. Areas with an oversupply of apartments or multi-story buildings can lead to a drop in property values, as an influx of new developments creates competition. 

This can impact your property’s value, which in turn affects your loan-to-value ratio (LVR). If the value declines, you may need to contribute a larger deposit when applying for a home loan to offset the drop. This could potentially leave you paying more for a property that might lose value in a saturated market. 

Challenges with Strata and Build Quality

When buying a brand-new property, you are unable to assess the quality of the building first-hand. This lack of oversight extends to the building’s long-term maintenance and strata management. 

Your Essential Due Diligence Checklist

Before committing to an OTP purchase, it’s essential to conduct thorough due diligence. Engage a property lawyer who specialises in OTP transactions and carefully review the contract terms. Here are some key things to look out for:

• Sunset Clause: Ensure you understand the sunset clause, which allows either party to cancel the contract if the settlement doesn’t happen by the specified date.
• Deposit Requirements: Be clear on the deposit structure and understand how this fits with your overall financing plan.
• Penalties for Delays: Some contracts include penalties if delays occur, so it’s important to know what potential costs you could face if the project runs behind schedule.
• Developer Reputation: Research the developer's track record, including any past legal issues or disputes.
• Insurance and Warranty: Ensure that the property comes with adequate insurance and warranty protections, and consider getting an independent building inspection before taking possession.

Final Thoughts: Is Buying Off the Plan Right for You?

Buying an off-the-plan property can be an attractive option, but it’s not without its risks. Understanding these risks, doing your due diligence, and working with experts who can help you navigate the process will ensure you make an informed decision.