Buying “off the plan”

These days, most new retirement village developments are low and high-rise apartments. To secure your place in the new development, you may need to buy your unit “off the plan”.

“Off the plan” refers to buying a unit that is in a proposed development or under construction. Because it has yet to be built, you secure the right to buy it “off the plan”.

Residential developers need to secure a minimum number of sales “off the plan” to prove-up the viability of the project and secure bank funding. Retirement village operators may also seek to sell units in new developments off the plan in order to reduce risk, rather than secure bank funding.

Pricing

For the buyer, in a rising property market, buying off the plan can secure you a future unit at today’s prices.

With new retirement villages, the old theory that a retirement village unit should be 60-80% of the local median house price typically no longer holds, as most new developments are similarly priced with surrounding comparable residential units. This is important to note – if there is little difference in price between the retirement village and the freehold strata development next door, then why would you buy something that doesn’t give you any share of capital gains and takes 20-30% of your purchase price (the exit fee) when you leave? This is why you need to be really clear about your reasons for preferring the retirement community environment with its inherent support, vs a residential apartment tower.

Deposits

Deposits for off the plan units may be higher than those required for existing retirement village units, more in line with the residential market (5-10% of the purchase price). With freehold units, stamp duty is payable within 30 days of contract exchange (check your state requirements). Because retirement villages operate using a leasehold model of tenure, no stamp duty is payable.

Pro’s and Cons of buying off the plan

Advantages:

Locks in the price
Choice of finishes (possibly – some new developments will offer this)
New home = lower maintenance
Wider choice of units (if you get in early)
More time to sell your property

Disadvantages:

Vulnerable to price fluctuations (good if prices increase, bad if they decrease)
No ability to inspect
Completion may be delayed by weather or construction issues
You won’t know the final quality and appearance of the complex
Purchasers are rarely permitted to visit the site under construction
Contracts are rarely in favour of the buyer with regards to penalties for delayed completion
There are no retained amounts of the purchase price for ongoing defects (and there always are!!)

The last word

There are many risks in acquiring a property that cannot be inspected – the purchaser cannot see what the property looks like, the standard of finishes or the practical layout, the size and dimensions or the view/outlook. These problems can be partially overcome by viewing a demonstration unit, video presentations (most developers use drones to capture the individual views from each unit) or sample finishes. However, there are many other issues to consider including the style, appearance a finish of the common areas, likely noise, proposed security system, visitor parking, access to vehicle parking, ventilation, garbage disposal and landscaping.