Securing property in the initial phase of development can be a wise investment, provided you have purchased at the lower end of the market and locked this away at today’s price. In some cases, settlement can take as long as two years, allowing the owner time to save money and reduce the amount for a mortgage. Depending on the state or territory where you have purchased, there are added government incentives on brand new properties such as stamp duty concessions. While these benefits are enticing, there are a few hiccups that come from buying off the plan.

Winner Partnership’s accountant and principal Susan Wahhab has secured numerous off-the-plan purchases for her clients. She says a common hiccup occurs if the owner’s circumstances change over the lengthy settlement period and they cannot secure finance.

”We recently had a situation where a client purchased a property off the plan some 18 months prior to settlement. Unfortunately, two months away from settlement, he lost his job,” said Wahhab. ”We quickly had to come up with a plan. Thankfully, the property he purchased was in a popular development and we were able to find a buyer for his property. But, luck was on his side, just as we were about to get the property transfer under way, the owner found a job, and he was able to secure a mortgage for the purchase.”

Wahhab offers these tips for off-the-plan purchases:

1. Find out if the bank will approve the loan earlier rather than later.

Get pre-approval from the bank. Even though pre-approval lasts for six months and the property might take 12 to 18 months to finish, it is worth going through the hassle of applying for a bank pre-approval to make sure finance won’t be an issue.

2. Do your numbers if you are buying an investment property.

Before you commit to paying the 10 per cent deposit, you will need to work out the numbers for cash flow, tax benefit and exactly how much the property will cost you after tax every week. Buying an investment property is a long term strategy. Without knowing the cost after tax and knowing whether you will be able to afford it, you will not be able to hold the investment over time to enjoy the long term capital gains.

3. Get a good lawyer who will read the contract from beginning to end.

Most property contracts are standard, but it is important to check for things such as the settlement period from date of plan registration. A standard contract has two weeks for final settlement. Ask for at least three weeks to cover any delays. Check the clause for changes that the developer can make to the plans or size of the apartment. Most states allow either a plus or minus 5 per cent variation for changes.

4. Ask for more.

The developer is keen to get the pre-sales done as soon as possible so they can get the bank approval to start building. Some marketing agents offer incentives to finalise sales. Make sure you get the developer to pay for the depreciation schedule and blinds, and if it is an investment property, ask for a rental guarantee for at least 3 months. It is worth asking.

5. Deal with the right people

Make sure you deal with professional advisers who can negotiate with the developer, the agent, and the bank on your behalf. A well known property adviser has a database of clients to market to if the need arises and you cannot go through with the settlement.

Sydney conveyancer, Cindy Warbuton says one the biggest challenges facing some of her clients, other than changes in financial and personal circumstances, is separating the differences between the agent’s marketing spiel and the contract terms. Also anything important to purchasers such as amenities and views must be included in the contract.

”It can be hard to visualise what you are purchasing even with plans and models. This can lead to disappointment in the final product as can waiting months after settlement to have minor defects fixed,” Warburton said.

”Purchasers should be clear on the longest date possible for completion – the ‘sunset date’ – as delays in expected completions are common. Another important issue is to check to see if you are entitled to any interest earned on your initial 10 per cent deposit as this interest is sometimes shared between the buyer and seller.”

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Posted by Emily Chantiri – The Age on 20th August, 2014