Buying ‘off-the-plan’ simply means you’re committing to purchasing a property that hasn’t been built yet.
Whether you’re a home owner or property investor, buying property off-the-plan has its advantages. You can read about some of the benefits of purchasing brand new property over existing property in this article.
New apartments, in particular qualify for some significant stamp duty savings at the moment making them a very attractive option.
However, if you’re going to purchase an apartment off-the-plan you need to understand the process – here are the 5 steps to follow;
Step 1. Pre Purchase
Finance Assessment & Preparation
- Have a Finance Broker determine your maximum borrowing and purchasing capacity. As brokers we can explore a range of different lenders & scenarios and work out what purchase price best suits your situation.
- A Finance Application is NOT required at this stage. That’s because you can only get ‘Conditional Approval’ when purchasing off-the-plan as settlement is too far away – often 12-24 months from when you first secure the property. Banks know a lot can change over this period of time – interest rates, lending policy changes, property values etc.
- Conditional Approval [or Pre-Approval] is really of no value at all as your approval is still subject to valuation and an updated assessment of your financial position at the time of settlement.
- Valuation Policy Changes [Oct 2016] – Valuers can no longer value property ‘off-the-plan’ as they’re required to have physical access to the completed property. For this reason, as well as those above, off-the-plan contracts are ‘unconditional’ – that is they can’t be made ‘subject to finance’.
Step 2. Purchase
Reserve Your Property
- To reserve your preferred property simply complete an Expression of Interest [EOI]/Reservation Form and pay a Holding Deposit [usually $1,000].
- This takes your property ‘off the market’ and allows for the preparation of Purchase Contracts by the Seller’s Solicitor.
- The holding deposit is usually 100% refundable should you change your mind and not wish to proceed to signing contracts.
- Arrange to sign the Purchase Contracts and return them to the Seller’s Solicitor.
- The Seller/Developer then signs and dates all Purchase Contracts – the contracts are now legally binding.
- Cooling Off – in South Australia you have two  full business days during which you can change your mind and pull out of the contract.
Pay 10% Deposit
- It’s now time to pay the 10% Deposit [usually due around 14 days after the contract date]. This could be in the form of savings/cash, equity you release from your home or even a personal loan.
- The deposit payment can be made by EFT or Cheque, and in some instances by a Bank Guarantee or Deposit Bond.
- All of the deposit monies are held in trust for the purchaser in a Conveyancer/Solicitors’ trust account.
- This purchase deposit is only refundable if you ‘cool off’ or if the Seller/Developer does not complete the project.
Step 3. Construction
- It’s important that your stay in touch with your Finance Broker throughout this period and also keep up to date with the overall progress of the development.
Step 4. Finance
Finance Application & Approval
- Contact your Finance Broker 60-90 days out from settlement to begin reviewing your finance options.
- Consider whether you will need to borrow up to 95% of the purchase price and pay Lender’s Mortgage Insurance [LMI], or stay below 80% and pay no LMI.
- With your Finance Broker complete a Finance Application with your preferred lender.
- The Bank will assess your application and order a valuation of the property you are purchasing.
- Once the valuation is complete and all other conditions are satisfied, the Bank will issue you an ‘Unconditional Approval’ for finance.
Step 5. Settlement
- The Seller’s Solicitor will confirm the settlement date following ‘practical completion’ of the development and issuing of all property titles.
- Liaise with your Conveyancer/Solicitor and Finance Broker to confirm the total funds required for settlement and that your Bank is ready to go.
- Settlement occurs – Congratulations!
- If you’re an investor you should now engage a Property Manager to help you find a tenant for your new property.
As you can see buying off-the-plan is a little different to purchasing existing property. Firstly, an off-the-plan purchase contract is much more detailed given that construction has not commenced. As such the contract will usually include everything from proposed body corporate assets and expenses to an outline and schedule of finishes for each property.
The second difference is in the settlement phase. While settlement for an existing property generally occurs 30 days from the contract date, purchasing off-the-plan allows significantly more time [usually 12-18 months or more] between the contract date and settlement.
As Finance Brokers it’s our job to guide you through the whole process and make sure everything gets done right. The process doesn’t need to be complicated, and with the assistance of Urbantech Finance purchasing off-the-plan can be stress free.
Off-the-Plan Stamp Duty Concessions
The following stamp duty concessions apply when purchasing any new apartment in Adelaide prior to 30 Jun 2017
MARKET VALUE <$500,000
Based on Calculation:
DV = (MV x 0.35) + (MV x 0.65 x C)
DV = value you pay stamp duty on
C = stage of construction at contract date [stage 1 = 0%]
Purchase Price: $450,000
DV = ($450,000 x 0.35) $157,500 + ($450,000 x 0.65 x 0%) + 0
DV = $157,500
Reduced Stamp Duty: $5,130
Normal Stamp Duty: $18,830
Stamp Duty Saving: $13,700
MARKET VALUE >$500,000
Based on the below Schedule:
Amount of discount based on completed construction stage;
Stage 1 [0%]: $15,500 discount
Stage 2 [20%]: $12,800
Stage 3 [40%]: $9,750
Stage 4 [60%]: $6,500
Stage 5 [80%]: $3,250
Stage 6 [100%]: $0
Purchase Price: $570,000
Normal Stamp Duty: $25,180
Concession [Stage 1]: $15,500 [Stamp Duty Saving]*
Reduced Stamp Duty: $9,680
Note: In addition to the above stamp duty concessions first home buyers are also eligible for a $15,000 FHOG when purchasing new property under the market value of $575,000
For more details please see https://www.revenuesa.sa.gov.au
Where should you buy apartments?
In Adelaide there are currently some excellent opportunities to buy and invest in new apartments. Based on our research we feel very strongly about the city-fringe suburb of Bowden.
Whether you want to explore the unique ‘Bowden lifestyle’ or make an investment for your future this area is certainly worth a look.
In fact, we think Bowden might just become Adelaide’s next property hotspot. You can read more about why we like Bowden here
For more info or assistance with finding and investing in new property please call Sam on 0411 431 391
Sam, Matt & Andy
Adelaide Finance Brokers + a lot more…