Finder makes money from featured partners, but editorial opinions are our own.

How buying off the plan works

Buying off the plan can be a great way to buy a new home, but it also means putting money down on a property that hasn't been built yet.

Avatar

By

Richard Whitten

Edited by

Moira Daniels

Updated

Fact checked

Buying off the plan means purchasing a property that is under construction or is going to be built soon. If you've ever seen apartments for sale that are just shiny 3D renderings of a building, that's usually an example of an off the plan development. The building doesn't actually exist yet.

If you want to buy off the plan, you'll sign a contract and put down a 10% deposit. But you won't have to sort out the home loan and the full deposit amount until the building is complete.

For owner-occupiers and investors alike, buying a property off the plan presents opportunities and challenges. You could snag a new unit at a good price in a growing market, or you could wind up owning very little for years as construction drags on.

How to buy off the plan: A step-by-step guide

The typical off the plan purchase works like this:

  1. Find an off the plan development
  2. Submit an expression of interest
  3. Sign the contract and pay the deposit
  4. Pre-settlement inspection
  5. Get your home loan organised
  6. Move in

Let's explore each step in more detail below.

1. Find an off the plan development

Find a development that looks like it suits your needs. You may find listings in the usual property sales sites, such as Domain and realestate.com.au. Work out what your needs are in terms of location, size and features.

This is also the time to do some research on the area around the development and to look into the developer itself.

You should visit the company website, review past and current projects as well as their financial performance to ensure that the developer is in a strong position to carry out the intended works.

You should ensure that the builders for the development are licensed and qualified and you can check this on your relevant state government website. What projects have they completed recently? Have they had any problems on other projects?

2. Submit an expression of interest

Developers may reach out to local real estate agents in an attempt to generate interest in the development. Sometimes you may be able to lodge an expression of interest payment; however, it's important to note that this signals your interest and does not guarantee that the property will be sold to you.

3. Sign the contract and pay the deposit

Once you've selected the location and development project, you'll need to sign a contract of sale for the purchase. Before signing on the dotted line, it is paramount that you seek independent legal advice from a conveyancer or solicitor to ensure that the contract contains all the relevant terms for the exchange.

Contracts should include:

  • Cooling off period. In most Australian states, the cooling off period is between 3 and 5 days, meaning you can change your mind about the purchase during this timeframe. However, keep in mind that if you have a change of heart and you decide to withdraw from the purchase, you may be charged a termination fee from the developer which is generally around 0.25% of the purchase price.
  • Project plans. The contract should disclose information regarding the specific plans of the build. This should include proposed plans, floor plans and a schedule for the construction. It's important that you fully understand, and are satisfied with, the level of detail that the developer has disclosed regarding the development plans and the quality of fittings and fixtures.
  • Inclusions. Make sure that you review the inclusions and warranties in the contract of sale to make sure that if the developer makes changes to the planned build, it will not affect you negatively. It's also important to ensure that the contract specifies the cost of upgrading fixtures and fittings if you are not satisfied with the initial ones. Also check to see if there is a dispute resolution process in place in case there are any delays or other issues.
  • Finance. If you're obtaining finance from a lender, you need to ensure the contract is subject to you obtaining the relevant finance. Generally, developers will give you 30 days to obtain finance approval from the date that the contract was signed.
  • Building defects. The contract should include a clause stating that the developer is responsible for rectifying any defects in the construction, prior to settlement.
The deposit

Off the plan contracts usually require 10% deposits. You pay this when you sign the contract. Because buildings take a long time to complete, you could pay the deposit and not move in for another year or two.

You pay the rest of the property price at settlement, although usually it's your lender that pays the money. However, you may want to contribute more to the deposit. A 20% deposit is considered the standard size in Australia. Anything under 20% means you may have to pay lenders mortgage insurance (LMI), which can cost thousands or tens of thousands more.

4. Pre-settlement inspection

When the building is almost finished, you will be able to inspect it. The builder will arrange this for you. This is the time to check the project has been completed to the standard you agreed to in the contract.

Check the inclusion list in your contract and make sure everything is there. If there is anything missing, or any defects, now is the time to get the builder to fix them.

5. Get your home loan organised

Settlement is when you take possession of the property and the money changes hands. Before this, you'll need to actually get your home loan organised.

This means comparing home loan rates and finding a suitable loan.

Some Australian lenders may be reluctant to provide finance for off the plan purchases because the property may be sold for more than it's worth. In an uncertain market, the property value might decline between the signing of the contract and the completion of the build.

As a result, some lenders will require an 80% loan-to-value (LVR) ratio, while others may require reviews of any pre-approvals they issue at the time you sign the contract. It's a good idea to wait and apply for approval 6 weeks prior to settlement.

6. Move in

Once settlement is finalised you can move in – but your builder is not completely off the hook yet. There is usually a 90-day maintenance period where the builder is obligated to fix defaults or other issues.

But not everything wrong can be considered a defect. There may be cases where a feature you identify as a defect falls within the builder's acceptable standard of workmanship.

Should I buy off the plan or not?

The decision to buy off the plan will vary depending on your investment purpose, the amount of risk you’re willing to endure as well as your personal financial situation. You should carefully review the advantages and drawbacks of purchasing off the plan before signing on the dotted line.

Benefits of buying off the plan

  • Lock in a good price before it rises. A key benefit of purchasing property off the plan is that you can pay the current market value for a property, even though it will be completed in the future, and will likely appreciate in value by that time. In a rising market, your unit could be worth more than you paid by the time it's finished (but this is not a guarantee).
  • Choice. If you get in early you have the flexibility to choose your purchase from the range of properties for the development project. For instance, you may be able to choose a property that’s closer to amenities or shops or the one with a better view.
  • Low initial cost. You only need to provide a 10% deposit upfront. The outstanding balance doesn’t need to be paid until settlement.
  • Time. The long settlement period means that you have time to get your finances in order, boost your savings and save for settlement. You may also benefit from capital gains over time.
  • FHOG and stamp duty concessions. In Australia, most states provide a first home owners grant (FHOG) for first home buyers purchasing new dwellings that are valued under a certain amount. This may involve exemptions or discounts associated with stamp duty.

Risks of buying off the plan

  • Prices can fall before construction is finished. When purchasing off the plan, you run the risk of paying too much for a property if the market enters into a decline.
  • Expectations. As many builders don’t allow you to see the property until construction has completed, there is the risk that the quality or layout of the build may not be what you had in mind.
  • Rising interest rates. As with any financial decision, you run the risk that interest rates may rise before you settle on the property, which may be an issue if you made the decision based on low interest rates.
  • Bankruptcy. There is a risk that the developer may go into liquidation before the build is completed, so you need to carefully review the terms of the contract to see what your options would be if this occurred.
  • Rely on good will. When buying off the plan, you must rely on the reputation, honesty and goodwill of the developer which is why it's crucial to research the developer and its financial strength.
  • Change in lender policy. Certain investors may be affected by a change in lenders' policies post the Australian Prudential Regulation Authority (APRA)’s recent intervention. For instance, if you took out a loan for a $500,000 investment your lender may have been prepared to lend you 95% LVR ($475,000). However, an intervention by APRA now means the lender can only lend you 80% LVR ($400,000). This would mean that you need an additional $75,000 to complete the deposit and qualify for the loan – or find another lender that’s willing to lend at a higher LVR.

Example: Arnaud's off the plan property woes

This man is not happy.Arnaud decided to purchase an off the plan apartment in Sydney's CBD for $925,000.

After inspecting the display apartment, he researched the area and compared the price of the apartment to surrounding properties, and was pleased to learn that it was priced under market value. So he consulted a mortgage broker and took out a variable home loan over a 30-year period.

However, the original developer could not finance the construction of the building so it sold the project to another developer. This meant that the construction, which was originally meant to take 1.5 years, took much longer than originally anticipated. Arnaud explains:

"One day we received a letter and they said they had sold the project to another developer. The first developer we trusted because that's who we bought the property from, we checked their registration so we knew we would get something quality. But we didn't know who the new developer would be. Not only is it not going to be finished on time, but you then have to research the new developer and make the decision about whether you want to stay or get out; it was stressful. We were meant to move in by December 2013. Instead we ended up moving into the apartment in July 2015."

Although the developer warned Arnaud that the catalogue was only indicative of the final product, they later realised that the contract did not include a fridge. The developer then sent Arnaud and his partner a letter asking whether they would like the company to provide a fridge, and whether it would be integrated or not, so they had to fork out an extra $2,000, which they didn't think was fair.

Another issue they encountered was that the developer changed the location of the lobby. Arnaud and his partner liked the positioning of the lobby because they felt it would be a nice environment to welcome guests, but the lobby ended up being in a different location which was inconvenient.

Questions to ask your builder before signing a contract

  • Can I make changes to finishes or fixtures in the bathroom and kitchen?
  • Can I visit the site during construction?
  • Where do I stand if construction is altered from the original plan?
  • What are my rights if the design or layout is altered? Can the builder change the design without my consent?
  • What are my rights if there are delays?
  • Is my deposit secure if the construction doesn’t go ahead?

Frequently asked questions

Compare loans from across the market

Updated regularly
{"visibility":"visibilityTable","ctaLabel":"Calculate","tableCode":"SAMPLE_COMPARISON_V2_TEMPLATE","nicheCode":"AUFHL","fields":[{"name":"LOAN_AMOUNT","value":"150000","options":"","label":"Borrowing amount","suffix":"$","useSuffixAsPrefix":true,"useDropDownOption":false,"tooltip":""},{"name":"PERIOD","value":"30","options":"","label":"Period","suffix":"years","useSuffixAsPrefix":true,"useDropDownOption":false,"tooltip":""}]}
Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Unloan Variable Home Loan
Principal & Interest20% min. depositOwner-occupierRefinance
Interest Rate
5.74%
Comparison Rate
5.65%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$876
Go to siteMore Info
Tiimely Own Variable Rate Home Loan
Finder AwardPrincipal & Interest10% min. depositOwner-occupier
Interest Rate
5.94%
Comparison Rate
5.95%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$895
Go to siteMore Info
HSBC Home Value Loan
Principal & Interest40% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
5.99%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to siteMore Info
loans.com.au Variable Home Loan
Principal & Interest10% min. depositOwner-occupier
Interest Rate
6.04%
Comparison Rate
6.06%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$905
Go to siteMore Info
Up Home Loan Variable Rate
Principal & Interest10% min. depositOwner-occupierOffset account
Interest Rate
6.15%
Comparison Rate
6.15%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$915
Go to siteMore Info
Macquarie Bank Basic Home Loan
Principal & Interest40% min. depositOwner-occupier
Interest Rate
6.14%
Comparison Rate
6.16%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$914
Go to siteMore Info
G&C Mutual Bank Essential Worker Home Loan
Principal & Interest5% min. depositOwner-occupierOffset account
Interest Rate
6.04%
Comparison Rate
6.07%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$905
Go to siteMore Info
Mortgage House Chameleon Home Loan
Principal & Interest50% min. depositOwner-occupierOffset account
Interest Rate
5.99%
Comparison Rate
6.03%
Fees
Application: $600
Ongoing: $395 p.a.
Monthly Payment
$900
Go to siteMore Info
Bendigo Bank Express Variable Home Loan
Principal & Interest10% min. depositOwner-occupierOffset account
Interest Rate
5.97%
Comparison Rate
6.12%
Fees
Application: $250
Ongoing: $10 per month
Monthly Payment
$898
Go to siteMore Info
Newcastle Permanent Building Society Real Deal Home Loan
Principal & Interest20% min. depositOwner-occupierOffset account
Interest Rate
6.04%
Comparison Rate
6.08%
Fees
Application: $595
Ongoing: $0 p.a.
Monthly Payment
$905
Go to siteMore Info
$2,000 refinance cashback offer
Eligible refinancers who apply online and borrow $250K+ (LVR 80% or lower) can get a $2,000 cashback. Terms and conditions apply.
Homestar Star Gold
Principal & Interest30% min. depositOwner-occupierOffset account
Interest Rate
5.98%
Comparison Rate
5.98%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$899
Go to siteMore Info
HSBC Home Value Loan
Principal & Interest30% min. depositOwner-occupier
Interest Rate
6.04%
Comparison Rate
6.04%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$905
Go to siteMore Info
Unloan Variable Home Loan
Principal & Interest20% min. depositInvestmentRefinance
Interest Rate
6.04%
Comparison Rate
5.95%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$905
Go to siteMore Info
loans.com.au SMSF
Principal & Interest20% min. depositInvestment
Interest Rate
7.49%
Comparison Rate
7.50%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$1,049
Go to siteMore Info
Macquarie Bank Offset Home Loan Package
Finder AwardPrincipal & Interest40% min. depositOwner-occupierOffset account
Interest Rate
6.14%
Comparison Rate
6.39%
Fees
Application: $0
Ongoing: $248 p.a.
Monthly Payment
$914
Go to siteMore Info
Newcastle Permanent Building Society Premium Plus Package Fixed Rate
Principal & Interest 2Y Fixed20% min. depositOwner-occupier
Interest Rate
5.99%
Comparison Rate
7.76%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$900
Go to siteMore Info
G&C Mutual Bank First Home Buyer
Principal & Interest5% min. depositOwner-occupierOffset accountSpecial Offer
Interest Rate
6.19%
Comparison Rate
6.22%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$919
Go to siteMore Info
Up Home Loan Fixed Rate
Principal & Interest 5Y Fixed10% min. depositOwner-occupierOffset account
Interest Rate
6.45%
Comparison Rate
6.28%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$945
Go to siteMore Info
Macquarie Bank Basic Home Loan
Principal & Interest20% min. depositOwner-occupier
Interest Rate
6.20%
Comparison Rate
6.22%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$920
Go to siteMore Info
Mortgage House Maxx Saver Home Loan
Principal & InterestOwner-occupierOffset account
Interest Rate
6.19%
Comparison Rate
6.23%
Fees
Application: $600
Ongoing: $0 p.a.
Monthly Payment
$919
Go to siteMore Info
loading
Aussie Home Loans Logo

It takes just 30 seconds to book your free home loan consultation and get started

By submitting this form, you agree to the Finder Privacy and Cookies Policy and Terms of Use

All applications are subject to approval, terms and conditions apply. Aussie does not provide financial or investment advice. Aussie makes no representation or warranty to the accuracy or completeness of the information presented by Finder. Aussie recommends that you seek independent financial, legal and taxation advice before making an investment decision.

Aussie is a trade mark of Lendi Group Distribution Pty Ltd. © 2023 Lendi Group Distribution Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

We collect personal information (including name, mobile number and email address) about you so we can contact you and make an appointment to discuss a home loan and other products that may be of interest to you. For more information about how we collect and handle personal information, including how you can access or correct your personal information or contact us with any feedback read our privacy policy.

Once you’ve entered your details, an Aussie broker will be in touch to start supporting you on your home loan journey.

  • Our panel of 25+ lenders will allow you to compare 100’s of rates
  • Get access to free suburb and property reports
  • Have expert guidance through the entire application process.
Aussie Home Loans Lender Logos

An expert leader in mortgage brokering

Image: Shutterstock

More guides on Finder

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and 6. Finder Group Privacy & Cookies Policy.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Go to site