Is Now the Time to Buy Off-the-Plan in Sydney?
With the Sydney market seeing consistent clearance rates below 50% and funding a challenge, is now the time to look at purchasing off-the-plan?
Off-the-plan is when you purchase a property from an approved plan which is currently under construction or about to start. The negative is that you can’t see the finished product, however, these days most reputable developers have full display suites you can walk through to see what the end product will look like.
There are many benefits to buying off-the-plan and the current Sydney property environment is a perfect reason to take advantage of them. Below I will explore these reasons.
1. Pay today’s price for a future completion date – most developments selling off-the-plan are not due to be completed till 2020 or beyond. Whilst you would be securing a price based on today’s market, the Sydney property market has not been one to stay down for long and historical statistics would say that 2020 is likely to be a positive growth year for property in Sydney. The market saw people purchasing between 2011- 2014 make substantial gains by the time the properties had completed.
2. 5% is all you need – when buying a completed property you require a 20% deposit to avoid Lenders Mortgage Insurance (LMI). When purchasing off-the-plan you normally require 10% to secure your property but currently, many developers are comfortable with just a 5% deposit.
3. Funding can only get easier – with the banking Royal Commission, we have seen one of the toughest periods ever for borrowing money. With the major banks over-exposed with interest-only loans and changes to lending policy, many have been disappointed after months of searching, only to find out they cannot borrow funds. Many are confident that lending in 2020 and beyond will be much easier, which is another good reason to consider off-the-plan as you will not need to get your final approval until settlement.
4. Developers are doing great deals – developers need to secure a minimum amount of sales to acquire construction funding. Once they have secured their funding, they are less flexible on pricing as they know, by the time the development is complete, the market will be in a totally different position within the cycle. However, when they are 2 or 3 sales away from securing their funding they are highly motivated and this is when you can secure a great deal.
5. Gives you time to save – most people want to buy a property to stop paying rent. The great thing about buying off-the-plan is that you have secured a property and now have 18 months or 2 years to keep saving before you need to settle. Generally, when looking to purchase a $650,000 property, it is cheaper to rent an equivalent property. This means after you have secured your off-the-plan property, you still have time to save a little more of a deposit as it’s getting built.
6. Protect yourself from the next BOOM – this is both for investors and owner-occupiers. If buying and settling a property now is too challenging, but you know you will have the time and capacity to do so in the future, buying off-the-plan gives you that time to get everything in order. It also means that you have secured a property now even though you won't have to settle for 2 years and this is a great protection should the market increase over this period. Once the market starts to increase you may find that the deposit you had, is now not enough to secure that property because its value has increased and with that comes the need to have a larger deposit.
Anyone who has lived through a property cycle will understand that the current environment is not permanent and that in fact now is a great time to buy. For those who are just not quite ready, having finance issues, or unsure as to the next 6 months, buying off-the-plan could be the best decision they make in terms of a property transaction.
If you are considering purchasing off-the-plan, shop around do your homework on the developer and the building and only proceed if you are extremely confident with what you have seen. If you have questions in relation to how off-the-plan purchasing works feel free to contact Property Association Director Andrew Phanartzis on 0404 860 982 or email him at firstname.lastname@example.org.