Buying off the plan is a solid strategy for property investors as long as they understand the risks, according to one property management expert.
Owen Davis of DFG Property said that buying off the plan doesn’t deserve its “somewhat shady reputation”, but investors must understand the risks and be ready to manage them.
“From the time you sign the contract, the value of the property at settlement can be different from the price you agreed to pay,” he said.
“It can really ruin your day when you arrive at settlement date only to find your bank won’t lend you the amount you requested because they’ve valued the property at less than you agreed to pay the developer.”
Mr Davis said the main reason this happens is to do with property markets and valuers.
“It’s the job of the bank’s valuer to protect the bank from bad lending decisions, so they’re a bit more conservative than a more optimistic developer,” he said.
“When it’s a large development, or there hasn’t been a lot of comparable sales in the area to get a guide, a bank’s valuer may err on the side of caution and inadvertently undervalue a property.”
Mr Davis said property markets can be hard to predict, but with some due diligence and a bit of luck, investors can reap the rewards.
“If the property value goes up, for little to no deposit you’ve secured the property under your name, paid little or no deposit and made a capital gain without paying any interest,” he said.