Should you invest in off-the-plan properties?

Find out the risks and invest in off the plan properties more successfully

Investing in off the plan

Many investors are looking to purchase off the plan due to attractive stamp duty concessions, tax benefits and the mindset of “paying today’s price for tomorrow’s equity”. But is it a good investment?

What is buying off the plan?

When investors buy off the plan, they are essentially buying a property, sight unseen, based on a builder’s blueprint or development plan. That is, you are entering into a legally binding agreement to purchase a property before it reaches the final stage of development.

Read our guide about purchasing off the plan.

Pros and cons of investing in an off-the-plan property


  • Competitive price: Many investors are enticed by the discounted prices offered by the developer for those “first in, best dressed”. A well-located property for under market value can offer investors significant price incentives, especially when combined with the tax benefits of buying off the plan.
  • Return: An off-the-plan property can yield high rental returns for investors in the form of a substantial and steady income stream.
  • Tax and depreciation benefits: Investors can benefit from capital gains and tax benefits through depreciation and negative gearing for a new property. For instance, as an investor, you reduce your taxable income by claiming depreciation on items such as fixtures and fittings.
  • Flexibility: Due to long settlement periods, capital growth may mean that your initial deposit becomes more valuable over time.


  • Change in lender policies: You may be affected by a change in your lender’s policy following the recent intervention of the Australian Prudential Regulation Authority (APRA). For instance, if you took out a loan for a $500,000 investment, your lender may have been prepared to lend you 95% of the property’s value, or $475,000. However, now say that the same lender can only lend you 80% LVR, or $400,000, meaning you would need an additional $75,000 to complete the deposit and qualify for the loan – or find another lender willing to lend at a higher LVR.
  • Loan approvals: Keep in mind that even if you get pre-approval for finance today, it does not guarantee that the lender will let you borrow the funds in the future. A lender can change its decision based on your employment status as well as a more current valuation of the property.
  • Untenanted periods: If you’re an investor, you run the risk of not being able to attract any tenants, or you may have to lower your rental price if there is an oversupply of property in the area.
  • Change in property value: There’s the risk that the property may be worth less at the time of settlement than what you paid for it, which will lower your equity position.
  • Rising interest rates: As with any finance decision, interest rates may rise before you settle on the property, which could be problematic if you were motivated to make the purchase in a low interest rate environment.

Jay’s off-the-plan investment

Investing in off the plan property case study

Motivated by stamp duty savings and tax benefits, Jay found a unit in Hopper’s Crossing that was part of a wider development project. After speaking with an accountant and financial adviser, Jay researched the residential vacancy rates and average rental yields for Hopper’s Crossing to determine whether or not it was a good location for an off-the-plan purchase.

A property agent took Jay and his wife to inspect the site. Although Jay intended to purchase only one unit, the agent advised them that they would get a better deal if they purchased three apartments, which worked out to be a 15% price difference. Jay and his wife took this advice to their accountant, who worked out the outgoings and incomings at the current interest rate and advised that it could be a worthwhile investment, predicting that Jay would save between $12,000 and $14,000 per unit in stamp duty.

Once his financial planner helped him project his cash flow, Jay approached the bank and took out a variable home loan to finance the purchase in 2006.

The contract outlined the construction plans as well as details of the fittings and finishes. Jay only needed to negotiate a driveway attached to the units. The final build accurately reflected what was detailed in the original contract.

Now, Jay has tenants living in all three apartments and receives approximately $300 in rental income per week for each unit.

Hopper’s Crossing has witnessed major infrastructure projects in recent years, including the development of a large shopping plaza located just 2km from the units. Since 2006, the rental amount charged has increased by 30% to reflect the appreciation of property prices in the area.

Considerations when purchasing an investment property off the plan

  • Market research: Before investing in a property, you need to research the market carefully. You should look into supply-and-demand ratios for the location, approved infrastructure projects, accessing finance, forecasting cash flow, understanding tax and depreciation benefits, and seeking legal advice.
  • Developer background check: One of the most important factors you should consider before investing in an off-the-plan property is to review the reputation and credibility of the developer. You should conduct a builder and/or developer background check to ensure that they have a track record of delivering quality buildings as specified and on time. You should access information from the developer’s previous projects and clients to see whether they provided a quality build. You can request the licence numbers of the builders used for the development project to ensure that they have the right qualifications and experience.
  • Investor strategy: Your returns will be determined by your investment strategy, such as whether you are planning to ‘hold and rent’ or ‘flip’ the property for a profit. If you are thinking of a medium- to long-term hold, you’ll need to consider how attractive the property will be to prospective tenants and whether or not the property type is suitable for the demographics of the area. Flipping can be a riskier strategy as it relies heavily on rising property values and short-term profits.
  • Oversupply of competing properties: Even if there isn’t an oversupply of competing property types in the area now, you need to forecast what supply will be like in 5, 10 or 15 years from now. There could be an oversupply of properties once the build is complete due to other investor sales in the area, which may mean that you have to lower your rental price.
  • Independent legal advice: Ambiguity of contract terms is a good reason why you should seek financial and legal advice to ensure that the contract clearly lays out the specifications of the build as well as your rights in the event that the developer goes into liquidation or fails to deliver the property as originally promised.

What should be included in the contract?

  • Cooling-off period: Generally, the contract should include a cooling-off period of 3-5 business days, depending on which state you reside in. During this timeframe, you can pull out if you change your mind.
  • Build specifications: The contract should clearly lay out the specifications of the development project. This may include the floor plan, details of the fittings and fixtures, and inclusions. Ensure that you are satisfied with the level of disclosure provided by the developer before signing the contract, because the developer generally retains the right to change these plans if required.
  • Completion date:  The contract should specify an estimated time of when the developer intends to complete the build. While the developer reserves the flexibility to alter this timeframe, they have a responsibility to complete the project as soon as it is feasibly possible.

Questions you should ask yourself before investing in an off-the-plan property

  • Is the suburb in the right place to invest at this point in time?
  • Is there evidence of demand in the market?
  • What is the supply like at this point in time? What will supply be like in the future?
  • Is the property at market value?
  • What are my rights if construction is delayed?
  • What are my rights if the developer diverts from the original plan?
  • Will this purchase complement my investment plan?
  • Am I comfortable with the level of risk I am undertaking?
  • Am I satisfied with the level of disclosure provided by the developer?
  • What kind of tenants would I like to attract?

Questions you should ask the developer

  • Can I make changes to the build?
  • Can I select appliances?
  • Can I visit the site during construction?
  • Can I sell the property prior to completion?
  • How will disputes be resolved?
  • Are your builders certified?
  • What qualifications do you have?
  • Do you have any testimonials from previous clients?

How can I get finance?

If you require finance to fund the purchase, you need to make sure that the contract includes a clause that enables you to obtain finance within a certain timeframe from when you sign the contract. As a rule of thumb, developers normally give buyers 21-30 days from when the contract is signed to obtain finance approval.

Most lenders only allow you to borrow at 80%-90% LVR.

Compare a range of investment home loans using the table below.

Rates last updated August 24th, 2017
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Essentials - Variable (Investor, P&I)
Pay no application fee on this low variable rate investment home loan.
4.09% 4.11% $0 $0 p.a. 80% Go to site More info
Tic:Toc Invest Loan Variable Rate Home Loan
A low-fee variable rate investor loan with a fast online application process.
3.99% 4.00% $0 $0 p.a. 80% Go to site More info
Bank Australia Basic Home Loan - Investment Variable, P&I
Get a basic investment home loan with no ongoing fees.
4.87% 4.91% $595 $0 p.a. 80% Go to site More info Essentials - Smart Loan Package P&I
Package your owner-occupied loan with your investment loan and enjoy low rates for both.
3.89% 3.91% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Home Loan - 3 Year Fixed (Investor P&I)
Lock in the interest rate on your investment purchase for 3 years and enjoy the benefits of a package home loan.
4.24% 5.32% $0 $395 p.a. 95% Go to site More info
UBank UHomeLoan Variable Rate - Standard Variable Rate (Investor with Investor Extra Offer P&I)
Investors can take advantage of a discounted standard variable rate.
4.09% 4.09% $0 $0 p.a. 80% Go to site More info
NAB Base Variable Rate Home Loan - Investor (P&I)
Save on a no-frills home loan that offers a competitive rate without the bells and whistles.
4.65% 4.69% $600 $8 monthly ($96 p.a.) 90% Go to site More info
ING Fixed Rate Home Loan - 3 Year Fixed Rate (Investors)
Enjoy a competitive 3-year fixed rate with no ongoing fees.
4.39% 5.34% $499 $0 p.a. 95% Enquire now More info

Is an off-the-plan property a good investment?

Many believe that buying property off the plan is not a wise investment due to the level of risk involved.

Here are some reasons why purchasing off the plan doesn’t always form the basis of a good investment decision:

  • Pre-approvals: As loan pre-approvals are normally only valid for three months, obtaining pre-approval from your lender may be irrelevant once settlement comes around.
  • Low land-to-asset ratio: Off-the-plan investments normally have too much building value and not enough land value. This is problematic because the building will depreciate while the land value appreciates.
  • Oversupply of apartments: An oversupply of competing apartments may harm your capital growth potential by driving property prices down.
  • Reliance on goodwill: It’s not uncommon for developers to make variations to the original plan, which may jeopardise the quality of the build and your potential to attract tenants.
  • Insurance risk: When buying off the plan, the developer is excused from taking out home warranty insurance, which represents a major risk. You should therefore obtain proof of insurance before settlement.

How can I protect myself from these risks?

Many of the issues associated with purchasing off the plan can be avoided by conducting extensive research, doing a background check on the developer, and seeking both financial and legal advice.

Have APRA’s regulations affected investor off-the-plan purchases?

Investors who have recently purchased off the plan and expect to settle within 12 months may face challenges, as lenders have adjusted their policies following APRA’s crackdown. According to CoreLogic, APRA’s requirements for deposit-taking institutions to abide by a 10% speed limit has meant that many lenders are making major changes to their policies and discounts.

These changes make it important for investors to realise that what they receive from the lender is pre-approval only, not an unconditional approval to purchase. Investors should also be mindful that pre-approvals are generally only effective for three months, while it may take a large development two or three years to complete.

Belinda Punshon

Belinda is a journalist here at Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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