When it comes to buying off-the-plan, the old saying rings true: the early bird catches the worm.
Waiting years for an off-the-plan apartment to be completed might put some buyers off. When you’re ready to buy, you're often also ready to move, and the prospect of killing time in between those milestones can serve as a major deterrent.
Long wait while the building is under construction can be a deterrent for some buyers. Image: Getty
But in fact, it’s the patient buyers who are prepared to wait the longest who often get the best prices.
Why? A lot of it has to do with how developers finance their projects, which impacts their sales goals at different points of construction.
As David Milton, CBRE’s managing director of residential projects in Australia explained, “most residential projects require pre-sales for bank funding”.
What that means for a developer, is that the first sales are vitally important for attaining the financing that allows the whole project to be completed.
In light of that, developers are often motivated to secure those pre-sales and will price apartments attractively to get the first purchases locked in.
Samuel Gardner of Gardner Vaughan Group, a Queensland-based developer, provided more insight into what that timing looks like from a construction standpoint.
“Usually it's after the first four months of construction that you then go and draw on your development funding facility. So in that time leading up to construction, plus four months into construction, you're selling off the plan to achieve pre-sales.”
For would-be buyers that might want to take advantage of early incentives, they should be looking at developments that have not yet or barely broken ground.
But the moment the pre-sales target is hit, as Mr Gardner explained, “everything cools down”.
“We tell the agents to take the foot off the throttle,” he said.
Through the rest of the construction phase, the sale price will likely increase.
This is not only due to trying to align the price with demand, but also due to fluctuating market factors.
Renderings such as this project, called One Redcliffe from Gardner Vaughan Group, help buyers visualise what their new homes could look like. Image: realestate.com.au
Market impact
As Mr Milton explained, while early buyers do often get “better buying opportunities early on,” price escalations in off-the-plan apartments are also due to the simple fact that these projects take a long time to construct, and over that time, the market changes.
He advised buyers who purchase closer to completion to take a range of factors into consideration when assessing how much a price has changed since the apartments first went up for sale.
“Yes, you might be buying at a higher price than the original, but it's probably two years later, so the market might have moved substantially," he said.
But Mr Milton also highlighted that market factors can work in the favour of those earliest buyers – adding another incentive for early buyers.
An off-the-plan apartment “could be worth 10% or 15% more in value at the time [a buyer] settles,” depending on market changes, he explained.
That’s important because a lender will revalue the property for finance purposes just prior to settlement, which will occur when the property is complete.
“So if you bought something for $800,000 and you've signed a contract off the plan two years prior, and now it's worth $900,000 you'll get a valuation of 900,000 so that's improving your equity,” Mr Milton explained.
Long waits shake buyer confidence
The primary reason that buyers are deterred by the wait when buying an off-the-plan apartment is because their timeframe may necessitate moving sooner.
But another big reason is that long wait times can be cause concern among buyers, who worry that substantial changes could take place over the course of the build.
Buyers don’t want to put their money down for a product that hasn’t been produced – it feels safer when there’s more tangible evidence, such as an almost-complete construction.
But for those who have time on their side, Mr Gardner said that there are things consumers can do to give themselves assurance when buying off-the-plan, such as checking out a developer's reputation and how they have managed past development challenges.
He noted that many developers who weathered the COVID-19 years would have had to undertake value management exercises when delays and cost increases changed the financial picture of their projects that had been largely sold prior to the pandemic’s onset.
At GVG, this involved consulting with buyers on changes, and ultimately wearing the cost of certain alterations, because they were big enough to make it work and their reputation was important.
This is why he recommends soliciting reviews from residents of past projects from the developer for anyone thinking of buying off the plan.
“It’s all about reputation and trust. You're putting your hard-earned money against this property purchase. You need to trust that it's going to happen.”
Established outfits with lots of experience know how to manage the potential of shifting conditions from the front end, too, by designing projects that suit the needs of buyers and communities.
“You just want to make sure the buildings are fit for purpose, that they're specified adequately, and that the buyer knows what they're getting. If we do all this right, then there's less risk of any changes to the building down the track," Mr Gardner said.
Interested in buying off-the-plan? Check out our dedicated New Homes section for all the latest apartment projects.
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