What is Buying Real Estate Off The Plan?
Purchasing real estate prior to, or during construction, is
commonly known as ‘Buying
off the plan’. It means you enter into a contract
to purchase a property before a title is created and the building
is constructed.
Why would I buy real estate this way?
Our valued clients who purchase ‘off the plan’ have
enjoyed considerable increases in capital value,
during and after construction. It’s because they were
astute and were prepared to spend a little time exploring the
different options available.
Some have selected Pacific Lifestyle Property
to on-sell the real estate prior to settlement to realise their
gains. Others have decided to keep the real estate, lease it
out, and leverage their newfound equity to purchase another
with us.
Why does real estate increase in value?
Historically CPI has pushed up construction and land costs but
favorable market conditions are created by lots of factors including;
insufficient land supply to meet demand, population/demographic
shifts and the broader economic state of affairs.
Since the start of this Century, real estate has enjoyed an
impressive run in South East Queensland which has been geared
primarily by the explosion in population growth due to interstate
migration. The Gold
Coast in particular has experienced a shortage of land appropriate
for residential development causing prices to keep rising. And
with a strong Australian economy the bull run has been further
strengthened.
I have seen may instances over the years
where, purchasers had speculatively bought off the plan
and then sold the property prior to settlement becoming
due and in the process realising a substantial profit,
often with having outlaid very little money because the
purchaser has paid his or her 10% deposit by a deposit
bond or bank guarantee.
"Buying Off The Plan",
10 May 2004
Lou Farinotti
Partner
Holding Redlich Lawyers |
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Are there any other benefits?
Aside from the potential windfall you stand to achieve there
are other tangible benefits.
- Depreciation benefits could mean you pay less
tax
Tax deductions are available for investors who own income
producing property via depreciation allowances. New property
attracts the highest depreciation allowances. The building,
fittings & fixtures, common plant items (i.e. Air conditioners)
and furniture purchased for your property may be depreciated.
We can refer you to a quantity surveyor who can prepare
a depreciation report for your property. The depreciation
report shows allowances for deductions when your accountant
prepares your tax return. This could mean you pay less tax.
We suggest you speak with your accountant about it, you
may be surprised at what you could save.
- Minimise Transfer Duty
In Queensland, when you purchase a property you pay transfer
duty, a state government tax, on your purchase price. Let’s
assume you decide to on-sell the property you purchased
off the plan, at a price higher than your purchase price,
to someone who was prepared to wait until the property was
complete before they purchased. They will pay transfer duty
on your selling price.
- Customise to your hearts content
Most developers provide a selection of finishes allowing
you to choose the style of your apartment. Some will even
be happy to let you work with the architects to fully customise
the property which could further enhance it’s desirability
if you decide to sell.
- Captial Appreciation
If real estate markets appreciate during construction you
could make enjoy a considerable increase in the value of
your property.
What about the Risks?
Like any investment, there are risks and buying off the plan
is no different. Like all risks, they can be moderated with
diligence and good planning and by getting independent advice
from your solicitor, accountant and financial planner.
Risks include a drop in capital value due to unfavorable market
conditions or the quality of construction not living up to your
expectations. To mitigate these risks, we partner with development
companies who have a stable history and a good reputation.
The properties we bring you have unique and scarce features
set in leading edge areas with a history of strong demand and
capital growth. The quality of the building matches the price.
For your further peace of mind, new properties in Queensland
attract statutory warranties protecting you from defects. Fittings
and fixtures are complete with valid warranties.
We are able to show you artist impressions of the completed
development, examples of the anticipated finishes throughout
the property and a display suite for you to visit.
How
is it done in Queensland?
Essentially buying off the plan is 4 step process:
- You consider the development building plans, compare different
floor plans, finishes and features and undertake research
- Review and sign the sales contract offered if you like
what you see
- Organise finance using a bank guarantee, cash deposit
(or in some circumstances a deposit bond) equal to 10% of
the purchase price.
- Settlement occurs once the development is complete and
a property title has been registered with the Department
of Natural Resources and Mines.
When is duty payable in queensland for off the plan
sales?
Transfer duty is paid when you settle your purchase
Further Reading
Buyers
Guide To Off The Plan Investments
Your Investment Property Magazine
November 2007 |
