Off the Plan Home Loan Mortgage Finance Australian Citizens living working abroad as Australian expatriates buy home in Australia as investment purchase

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Off the Plan Home Loan for Australian Citizens Overseas

Many Australian citizens living overseas consider buying a unit ‘off the plan’. Buying off the plan is where a developer has an approved plan to build/construct a block of apartments and to ensure quick sales on completion of the project will offer the units for sale prior to construction beginning. The buyer of an off the plan unit will agree to buy now and pay a deposit of generally 5-10% to secure one of these apartments. The balance of the purchase price is due a year or two into the future when construction is completed.

Off the plan is a popular choice for expats and there are many developers who build and market these properties exclusively to interstate and overseas buyers. Overseas residents are often interested in off the plan as it alleviates some of the stress of buying an investment property when living overseas with no requirement for a physical inspection of the property given that the apartment will be brand new.

Generally these marketers only advise the positives of buying off the plan when, like anything, there are both positives and negatives in doing so. This page outlines some of these positives and negatives which borrowers should consider before agreeing to purchase.

What are the Positives and Negatives to Buying Off the Plan?

The Positives:

The primary benefits to purchase off the plan are;

1) No need for physical inspection of the property as unit is brand new,

2) In some states there are considerable stamp duty incentives/discounts (such as Victoria),

3) In a rising property market the purchaser could see considerable gains in property values before completion/settlement with some purchasers even on-selling prior to settlement turning a quick profit,

4) Some developers will offer guaranteed rental returns for a year or two post completion,

5) Tax benefits with purchasing brand new.

The Negatives:

The main risk when purchasing off the plan is arranging home loan finance. No lender will agree to approve a home loan for an indefinite period of time with the maximum approval period being six months. As a lender will only hold a full unconditional home loan approval open for 6 months, it is impossible to get approved unconditionally for an off the plan purchase because any approval is going to expire by the time settlement is due.

Therefore, the purchaser runs the risk that when settlement is due the bank will not lend the home loan finance because;

1) Valuations have fallen and the purchaser does not have sufficient funds to make up the difference (many off the plan buyers had this issue in 2010 where some areas suffered a fall in property prices),

2) Credit policy has changed resulting in the particular property or applicant being no longer acceptable to the lender (very common during the GFC where banks tightened their credit policy),

3) Interest rates have risen in conjunction with exchange rates worsening for Australian citizens overseas resulting in a reduced borrowing capacity and inability to afford the repayments.

Should I Buy Off the Plan?

MAP recommends that only those Australian expats in a strong financial position should purchase off the plan apartments. Australian citizens living overseas should;

1) Determine with MAP that they qualify for a home loan under existing expat credit lending policy,

2) Consider the results to an application for finance should valuations fall and/or the Australian dollar continues to rise,

3) Discuss with solicitor or conveyancer to understand the risks before entering into an unconditional contract.

As a general rule MAP recommends that an expat considering a purchase off the plan should have a minimum 20% deposit plus costs or expect to have such a deposit at the time of completion.