What does buying off the plan mean?
Buying a property ‘off the plan’ means the property hasn’t been built yet. It might be an apartment in a complex that’s yet to be built or a house and land package.
In such scenarios, you can’t view the exact property you will be purchasing. While you may be able to visit a display apartment or home representing what’s for sale, you might only have designs and floor plans to look at when making your purchase decision.
Importantly, the home loan process for off the plan properties typically differs from the one you might take when buying an existing property.
What happens when you buy off the plan property?
When looking to buy a property off the plan, you’ll likely be talking to the developer about what the property will look like once it’s built. Information you might be provided includes:
- Design blueprints or plans
- Artist renderings of interiors
- Architectural models of the exterior
- Display suites and site tours
- Samples of fixtures and finishes
Buyers are typically only required to pay a deposit to the developer or their real estate agent when signing a contract to buy the property—usually between 5% and 20% of the estimated value of the property once it’s built.
The remaining price may be broken up into progress payments timed to construction milestones. Conversely, it may be required to be paid to the developer when the property is completed and ready to move in.
Taking out a home loan for an off the plan property
When it comes to getting a home loan to pay for an off the plan property, you may need to have already saved a deposit or a portion of the total contract price, or have suitable equity.
The lender will also typically re-value the property prior to the final payment being made to the developer. If the price you’re paying is higher than what the value is determined to be, you might be asked to chip in more towards the purchase. In worst case scenarios, you might struggle to secure a home loan at all.
If you’re buying a house and land package, you might use a construction loan to fund the purchase. Construction loans usually allow you to draw funds down in stages, only paying interest on the money actually loaned at any given time. When work is complete, it will generally revert to a normal home loan with regular repayments.
Buying off the plan pros and cons
Pros of buying off the plan
Potential tax benefits
There are two ways buying or building a new property can offer tax benefits.
The first being that it’s expected that come mid-2027, only investors who buy a new home or who owned their home prior to 12 May 2026 will be able to negatively gear their property. Those buying new properties might also face different capital gains tax (CGT) treatment. Additionally, buying an off-the-plan property as an investment can offer potential benefits when it comes to claiming depreciation.
The second: When buying off the plan, some buyers can apply for a stamp duty exemption or concession.
And, if you’re purchasing a house and land package, it’s likely that you’ll only pay stamp duty on the value of the land, rather than the entire purchase price. Canstar’s stamp duty calculator can help you estimate how much your stamp duty could be.
Potential for higher rents
Brand new properties can often demand premium rents, given their fresh and modern fit-outs. This could be an incentive if you intend to buy an investment property off the plan and rent it out.
Lower maintenance costs
New properties may be less likely to require major repairs in the early years of ownership compared to decades-old properties. But don’t assume that this is guaranteed. It’s still important to have home insurance and savings to draw from if needed.
Ability to customise property to personal preferences
Buyers may be able to make alterations and additions so the property better suits their tastes and lifestyles. However, it’s worth checking the terms and conditions before entering into any contract.
Smaller deposit and more time to save
Generally, only a small deposit is required for an off the plan apartment, with settlement usually occurring 12 to 24 months after the purchase agreement.
More construction time means a larger gap between paying the deposit and the remaining purchase price on settlement. Any extra cash accumulated during this time could potentially grow your deposit or help with moving costs.
Government grants
You may be eligible for government assistance with the costs of buying an off-the-plan property.
For instance, you may be able to get a First Home Owner Grant (FHOG) if you’re a first home buyer. The details of these grants can vary between states and territories, but in most parts of the country, it’s only available to those buying new homes, including off the plan properties.
Capital growth if property prices go up
If house prices go up in your area after you have signed a contract for an off-the-plan property, your property could have appreciated in value by the time it’s built.
This uplift could reduce your loan-to-value ratio (LVR), which could help you avoid paying for Lenders Mortgage Insurance (LMI) or secure a lower home loan interest rate.
Potential disadvantages of buying off the plan may include:
The end product not meeting expectations
When buying off the plan, there’s always the risk that the final product doesn’t live up to your expectations.
Development does not go ahead or the developer goes broke before completion
If a developer decides a project is no longer viable or local or state governments delay or reject needed approvals, the project may be cancelled. If this happens, buyers who have paid a deposit will typically be refunded in full.
However, for buyers, this represents lost time in which they could have been hunting for a different property (and might be particularly disappointing if prices have risen in the meantime).
Another risk with off the plan purchases is that developers can become insolvent midway through the build. If a builder or developer goes bust, construction work at the site typically stops.
There are different rules in each state or territory about what happens next, and which government authority can help. Check with your local building authority and seek legal advice if you feel you need it.
Potentially unfavourable market dynamics
When buying off the plan as an investment, especially an apartment, another potential risk comes from the nature of the development. If a lot of similar properties hit the rental market at the same time, it could drive up supply of rental properties in the area, thereby reducing demand for them. This could see rents lower than expected or an apartment sitting empty for longer than planned.
Property market supply-and-demand forces can also impact a property’s potential sale price after settlement in much the same way.
Bank valuation changes and mortgage risks
Lenders will typically re-value the property at settlement, which could impact the amount they’re willing to lend to you. If your lender believes the property you’re looking to purchase has dropped in value or is not worth the purchase price, they may not offer a home loan large enough for you to buy the property.
That means you might need to come up with cash to cover the shortfall or pay LMI. In extreme cases, a lender may decide not to give you a loan at all.
Construction delays
If you’re buying the property to live in, unexpected construction delays could stop you from moving into the property when you want to, leaving you in need of temporary housing or renting for longer than expected.
Alternatively, if you’re an investor, delays could stop you from renting it out when you planned.
However, in most off-the-plan contracts, there is a safety net for buyers called the sunset clause. That means, if the property isn’t finished by a certain date, the buyer could walk away and have their deposit refunded.
Given delays could tie up your money and impact your financial plans, it could be a good idea to check whether your contract has a sunset clause, how long the developer has to finish the build, and if this matches your expectations and requirements. A professional conveyancer or property lawyer may be able to assist here.
What can an off the plan buyer do to help protect themselves from risks?
If you’re planning to buy an off the plan home, it’s important to manage the risks that come with it, from purchase to completion. Here are some tips you might follow:
- Research the past work and reputation of the builder and architect
- Keep an eye on the market and how economic changes could impact your property's future value
- Check if you’re financially covered in the event your builder files for bankruptcy before your property is completed
- Get independent legal advice on your contract documents
- Know your rights, fees, and obligations for living in a shared apartment or complex
- Consider hiring your own inspector to organise an independent building inspection after the property is built
- Learn more about the process for repairing any defects identified after the property is completed.
You might also do your own research before buying a property off the plan. This could include investigating:
- The property market and any predicted rises or falls
- How the development market is faring, like supply chain issues or other pressures that may impact the sector’s financial health
- The area in which you would like to buy, such as (if you are an investor) the average rent and supply of properties, now and into the future.
