Model four financial risks specific to off-the-plan purchases in Australia: valuation shortfall at settlement (including the LMI trap if the property falls below 80% LVR), any available stamp duty saving for your state, the cash or deposit bond at risk, and the holding cost of construction delays. Estimates are illustrative and depend on market conditions at settlement.
Why does the bank value the property at settlement, not when I sign?
When you buy off the plan, your loan is approved against a valuation made close to settlement, once the build is finished. If values fall during construction, that settlement-day valuation can come in below your contract price. The bank lends a percentage of the lower figure, so you may need extra cash to make up the difference and still complete the purchase.
What is a deposit bond and what does it cost?
A deposit bond is a guarantee a buyer can use in place of a cash deposit. Instead of locking up the full deposit for the whole build, you pay a fee, often around 1.2% a year of the deposit amount. The deposit itself is still payable at settlement, and your exposure if the developer becomes insolvent is the same as a cash deposit. Fees vary by term and credit assessment, so get a quote.
Will my finance pre-approval still be valid at settlement?
Finance pre-approvals usually last 60 to 90 days, while an off-the-plan build can run well beyond that. It is common to need re-approval before settlement, which is assessed against settlement-day interest rates and serviceability rules. Leave room in your budget in case repayments are higher than when you first signed.
What stamp-duty saving do I get buying off the plan?
It depends on the state. Some states assess duty on the value at the contract date, before later construction is added, which can reduce the duty compared with a completed home. Others have no off-the-plan concession and charge duty on the full contract price. Several concessions are temporary or expiring, so the saving shown here is an estimate, and the state revenue office makes the final determination.
What is a sunset clause?
A sunset clause sets a long-stop date by which the development must reach a milestone, such as registration of the plan or completion. If that date passes, the contract can be ended. Some states now require the buyer's written consent or a court order before a developer can rescind. Sunset terms and protections vary by state and contract, so read the clause carefully and seek legal advice before you sign.