While the oversupply of off-the-plan property in some parts of Australia continues to make headlines, one expert says there are still good deals to be found.
Dominique Grubisa, the founder of DG Institute, which helps Australians “grow wealth through property education”, says it’s all about picking the right property, in the right location.
Grubisa, a lawyer and author of Managing Debt: Turning Your Finances Around, says that while Melbourne’s Docklands and Brisbane’s Fortitude Valley are experiencing gluts in apartment supply, smaller boutique developments in niche areas often present “good buying opportunities”.
Boutique developments in niche areas can present good buying opportunities. Picture: Getty
Off-the-plan works best for foreign investors – as it’s often their only option – and time-poor, long-term investors, she says.
“For the time-poor, long-term investor, a developer with a good reputation can make buying decisions easy, as, over time, a quality development will hold its value and require less maintenance and expense, whilst giving maximum depreciation allowances for tax purposes (as they’re brand new),” Grubisa says.
Here’s Grubisa’s step-by-step guide to buying off the plan.
Information is power, so become an “area expert” by learning about sale prices, average time on the market, stock turnover, what sort of properties are sought-after, and the current supply and demand in the location being considered.
Also, look at the developer’s history, Grubisa says. “What else have they built? Do they deliver quality builds on time? Are they financial?”
And avoid big developments – “blocks with thousands of apartments and shared amenities” – as they’re not unique and are less likely to hold their value.
Next, visit a display, but don’t be tricked by glossy brochures and slick sales talk. Grubisa recommends asking lots of questions and getting a copy of the contract to review.
“Think about changes or specifications you want to request, as some builders will vary plans and finishes for you,” she says.
Now, see a trusted solicitor. Grubisa says they “will advise and negotiate on special conditions, negotiable clauses, and any contractual changes you wish to seek”.
Rather than putting down a cash deposit – usually 10 per cent for off-the-plan – Grubisa recommends applying for a deposit bond.
Usually available when the settlement is more than six months away, a deposit bond is essentially an insurance policy that promises the developer that the purchaser will pay the deposit at settlement.
Grubisa says there’s no need for buyers to tie up thousands of dollars of their own money for years whilst the project is being built.
Applying for a deposit bond is recommended over putting down a cash deposit. Picture: Getty
“Record the sunset clause date in the contract, so you can get out of the deal should the developer take too long to [complete the project]. This is a right you may formally exercise and is time-sensitive,” Grubisa says.
Within six months of the settlement, apply for finance.
The developer notifies buyers when it lodges the strata plan for registration with the relevant state body, and this is when you should prepare for settlement, as Grubisa says settlement generally happens only weeks later.
The strata plan shows the boundaries of lots and unit entitlements.
The strata plan shows the boundaries of lots and unit entitlements. Image: Getty
The next step is for the lender to value the complete property. This is a key step.
“Right now, a lot of people who bought off-the-plan are being forced to settle and bank valuations don’t stack up – the bank values it at less than the contract price – so they can’t get the loan and can’t settle, which leaves the developer in a pickle,” Grubisa says.
Careful research about the market and property should help avoid this situation.
After valuation, buyers should do a final inspection of the finished product. Not inspecting is one of the biggest mistakes Grubisa sees, especially among inter-state buyers. “Once you settle, it is too late to complain,” she says.
“You have a lot of power before settlement and can leverage this – i.e. by refusing to settle unless things are changed or rectified. This can even lead to a discounted price, if for example, inferior materials were used. After settlement, you cannot vary anything, because the contract is complete.”
As in all property transactions, settlement by a lawyer or conveyancer is the final step.