Off plan purchase pitfalls
BUYING off the plan offers considerable stamp duty savings but it can come with considerable risk.
Research by Melbourne buyer advocates WBP Property found more than 40 per cent of off-the-plan sales sampled were valued at less than the contract price when it came time to borrow money from the bank.
Chief executive Greville Pabst (pictured) said the average deviation in property value was $35,000.
If the bank’s valuation comes in below the contract price for an off-the-plan purchase, the buyer usually has to wear the difference.
Mr Pabst said the risk buyers face is that they sign a contract in one market, but conditions may have changed when it comes to settle; sometimes up to two or three years later.
“What typically happens with off-the-plan apartments is these are marketed during an up to two-year campaign. It could take the larger ones two to three years before these apartments are completed,” he said.
“You’re buying in one market but by the time it comes to settle, it could be 2017. The market in two years may bear no resemblance to two years earlier. That’s the big risk people need to be aware of.”
Mr Pabst said buyers automatically accept that the $500,000 they paid for an apartment will be the value.
“Our research has indicated quite often that’s not the case.”
Mr Pabst said economic conditions, such as interest rates, and the supply of new apartments in a local area could impact on an apartment’s value.
The research, which took a snapshot of about 900 apartments sold off the plan in the past 18 months, showed that 55 per cent were valued at the purchase price when completed.
“In most cases, the properties that did value up at contract price were those that were generally under $400,000. Typically they will be the onebedroom apartments,” Mr Pabst said.
“When we found a higher degree of risk it was in the twoand three-bedroom and higher value apartments, which typically contracts were exchanged at $600,000 to $900,000.”