Buying off the plan

Why Property Investors are Buying off the Plan

Written by Jade Kilpatrick
Why Property Investors are Buying off the Plan

With the property market being highly competitive in Cairns, investors are thinking further ahead and instead of purchasing existing properties, are getting in early and buying off the plan. For some, they already have an established portfolio but for others, it is their first step on the property ladder.

The Cairns property market is going from strength to strength with prices being driven up due to low vacancy rates and high consumer confidence. Real estate sales are moving quickly and property investors looking to grow their portfolio in Cairns, are turning to other options, such as buying off plan.

Widely accepted as more cost effective long-term, buying off the plan is an attractive scenario for both property investors and tenants. There is of course, a difference between buying a house off the plan vs an apartment in a large-scale development. The latter can carry more risk in some Australian cities which have an oversupply of high-rise builds however, Cairns isn’t impacted in the same way. We have however, seen numerous high profile residential unit developments fail to get to the build stage over the years. Housing developments on the other hand, typically sell well.

‘Out-of-town’ property investors, and even those familiar with Cairns and the surrounding areas, stand to benefit even further when working with a local property manager. With the market evolving rapidly, and with an increasing demand for high quality rentals, a property manager will be able to price it right, and secure great tenants quickly.

Whether it’s one, two or three plots, those in a financial position to do so, who may not even be based in the region, have recognised the growth in the Cairns real estate market and are acting now.

Why should investors buy off plan?

Buying off plan means that investors can make a profit before the house is even completed. With the price fixed from the outset and in an already buoyant market, the value of the finished property is likely to be higher than when the contract was originally signed.

Whilst markets can of course change, this does give investors some degree of security. As you’ll only be paying a deposit to the developer, you’ll have more time to save before completion. Assuming there isn’t a slump in the market, there will also be stamp duty discounts if you sign before construction begins, as well as other tax deductions such as depreciation.

For those property investors just entering the market, new houses are often viewed as low-risk, as they are often covered by structural building guarantees, and the maintenance costs will typically be less. It is therefore easier to estimate your holding costs and, hopefully, avoid any nasty surprises burning a hole in your pocket.
The benefits of a new home will not be lost on tenants either as they are usually more energy efficient and finished to a higher standard. This enables you to attract the best tenants and command higher rental values.

Choose wisely

Whilst it might be tempting to rush in and secure a block of land as soon as possible, it is important that you consider the location, zoning and block size first. Even though you probably won’t ever live in the house, it must be attractive to a good tenant which means yard size, number of bedrooms and proximity to other properties are all important.

Also consider the future from an owner/occupier’s perspective. Should you wish to sell, it is likely that your target audience will be those who are looking to live in the home for a reasonable amount of time, whereas tenants will typically move on after a few years. A local property manager will be able to advise you of the area, the infrastructure and the availability of public services. Whilst you will potentially never use these, your tenants and future buyer will have these front of mind.

So even though your motivation as an investor is financial, this doesn’t mean you shouldn’t consider all of the usual aspects you would if you were buying somewhere to live.

Of course, you won’t be able to look at the property before you make a decision so being able to visualise without an inspection, is also important. You’ll be going solely off artist’s impressions and plans.

The devil is in the detail

Whether you are considering investing in real estate in Cairns, Queensland or further afield, make sure you are aware of the contract details. What happens if the build doesn’t go ahead? How will delays be handled? Who is responsible for defects? Can you sell before completion? Are you protected by builders’ warranty insurance?
Always seek legal advice before signing anything.

Quality over cost

Another consideration is to make sure you have done your research about the project which includes getting information about the developer, builder and architect. This is of particular significance if you aren’t familiar with the area and don’t have the local knowledge the those in Cairns do. Whilst it can be tempting to go for the cheapest option, this doesn’t mean it’s going to be the right option.

Make sure you know what brand of appliances they are going to use and ensure they are of good quality. If you settle for something with a short lifespan, it could cost you in the long run.

It ain’t over until the sun sets…

If you’ve bought off the plan before, you should be familiar with this term but if not, now is the time to get your head around it.

The sunset clause is a time limit for completion which states the date and time when the project must be finished. If it isn’t, then the buyer will receive their deposit back. Whilst this is designed to protect the buyer, it has been abused with disreputable builders deliberately falling behind schedule so they can sell the homes for a higher price.

As with most things in life, there are pros and cons to buying off the plan versus an established property so make sure you have carried out your research and got legal advice before you do anything.

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