Buying Off-The-Plan In Sydney’s Inner City And Inner West

April 21st, 2023 - by Brad Gillespie

Are you looking to buy an apartment or townhouse in Sydney’s inner city and inner west and weighing up whether or not to buy off the plan?

If so, we explore when buying an unbuilt or unfinished apartment makes sense and when it’s a better idea to stick with an established property.

What does buying off the plan mean?

Buying off-the-plan happens when you sign a contract for sale before a property has been completed. Because there is no finished product, you’re buying based on what the developer says it intends to build, or ‘buying off the plan’.

When you buy an apartment or townhouse this way, you usually pay a deposit upfront, often 10%. You then pay the balance of the purchase price on settlement when the building is complete - this can be months or sometimes years away.

You clearly can’t inspect a final product, although many developers will have a ‘show’ property so that you can see how they intend it to look. That means there are risks involved in buying off the plan that aren’t there with existing properties - especially when it comes to the quality of the build.

Another key risk is the time delay between exchange and settlement. When you buy an established property, you usually take possession of it within six-to-eight weeks of exchanging contracts.

When purchasing off-the-plan, you typically have to wait several months – and sometimes years – until the building is complete and you’re able to take possession. You may even find that you need to pay stamp duty well before the property is even built (more on that later).

While it’s unlikely, there’s also a chance that a new off-the-plan apartment will never be completed. However, if this happens, you should typically receive your deposit back.

Quality and research matters

For these reasons, it’s natural for any buyer to feel more cautious when it comes to buying a brand-new or off-the-plan apartment.

Having only concept plans and a hole in the ground to look at can make it hard to imagine what you’re buying into. Meanwhile, several high-profile instances of defective builds - such as Mascot Towers and Opal Towers - and stories of developers altering apartment sizes can leave you wondering whether it’s worth it.

That said, no transaction in life is entirely without risk, and you can minimise the chance of buying something defective by conducting proper due diligence into the reputation of the developer and builder. This should include carrying out a Fair Trading licence check, choosing only a reputable builder, having a solicitor review the contract for sale, and carefully identifying any strata or other fees payable.

The numbers often work in your favour

If you’ve found a potentially good off-the-plan property and you’ve carried out your own research into it, there can be some real financial benefits to buying off the plan.

In fact, in a rising market buying off the plan will often mean you’ve made money on your property by the time settlement comes around. That’s because you’ll pay a deposit and lock in today’s prices rather than paying the value of the property when it’s actually complete.

Say, for instance, you put down a deposit on an apartment worth $600,000, and the market moves 20% upwards by the settlement date. The property will now be worth $720,000, but you’ll still only be paying $600,000 for it - essentially making $120,000 before you even own it.

Of course, the flip side is true too. So if that property falls, say, 10% in value by the settlement date and is now worth $540,000, you’ll have lost $60,000 by the time you move in. It may take some time for the value of the property’s value to return to what you paid for it.

Generous incentives for buying off the plan

To help people into a home while also stimulating construction, the government offers incentives for many people to buy off the plan.

First-home buyers can receive up to $10,000 towards buying a new property, including an off-the-plan property, if it’s valued under $750,000. They also receive an exemption or reduction of transfer duty.

Meanwhile, non-resident foreign buyers generally usually can’t buy established residential properties in Australia, which means they must buy off the plan. Temporary residents also face restrictions designed to encourage them to seek out brand-new properties.

And, while it’s not officially an incentive, investors often find the ability to claim depreciation on a new property an attractive proposition.

Lifestyle choices and ongoing costs

Buying off-the-plan can reduce your ongoing costs too. So long as you buy into a quality build, you won’t have to face the same maintenance issues that often affect older properties. There should be no major repairs or renovations required, and any defects should be the developer’s responsibility to fix.

There also generally often less maintenance and a range of amenities, including lift access, gyms, pools, rooftop gardens and resident lounges. While these will attract extra levies for owners, they also provide a quality lifestyle that appeals to young professionals, families and downsizers.

The downside of buying off the plan

Despite these many potential benefits, there are some downsides to buying off the plan, outside of the risk that something will go wrong.

Established properties tend to be a “known” quantity, which can make their future value more predictable. Certain types of established properties are also sought after by buyers. For example, many buyers love the craftsmanship that went into building art deco apartments, while mid-century modern apartments are prized for their light, bright interiors. This means they’re always in demand and can often hold their value better in tough market conditions.

If you buy in an area with many newly built properties, you can also find that there is an oversupply of apartments if the market cools. This means prices can fall further than they otherwise would.

Finally, while you’re likely to get to choose some fixtures and fittings, you usually can’t add genuine value through a renovation or upgrade to an off-the-plan property - not at least until many years have passed.

But despite these downsides, buying off-the-plan can still be a great option, both financially and for your lifestyle - so long as you get it right

Thinking of buying off the plan in Sydney’s inner city or inner west?

Get in touch to find out how we can help.