Navigating Finance for Off-the-Plan Purchases.

Purchasing an off-the-plan property is an exciting opportunity to secure a future home or investment. However, understanding the financial aspects is crucial to ensure a smooth process. From deposits to government grants and financing timelines, this guide explores what buyers - including foreign buyers and those applying for government incentives - can expect when navigating finance for off-the-plan purchases.

Understanding Your Financial Position

Before committing to an off-the-plan purchase, it is essential to evaluate your financial standing. The first step is to assess your borrowing capacity by consulting a mortgage broker or lender. They will help determine how much you can afford to borrow based on your income, expenses and credit history. Additionally, reviewing your savings is important, as you will need funds for the deposit and other associated costs such as legal fees and inspections.

It is also necessary to understand future repayments based on projected interest rates. Given the extended timeline of off-the-plan purchases, interest rates may fluctuate, which could affect your mortgage repayments. Factoring in potential increases in property value before settlement is another key consideration, as it can impact the final loan amount and overall investment strategy.

Securing a Deposit and Understanding Payment Structures

Off-the-plan purchases generally require a deposit of 10% of the purchase price, although some developers may offer more flexible payment options such as lower deposit requirements or staggered payment plans. The deposit is held in a trust account until settlement, providing some security for both buyers and developers.

For first-home buyers, stamp duty concessions and first-home buyer grants can reduce upfront costs significantly. These government incentives can make it easier to enter the property market. Additionally, some developers offer financial incentives such as rebates, rental guarantees or even furnishing packages to attract buyers. Understanding these incentives and factoring them into your financial planning can help you maximise your investment.

Financing Timeline and Pre-Approval

Unlike traditional property purchases, off-the-plan financing follows a longer timeline. It is advisable to obtain pre-approval from a lender before signing a contract, as this provides an indication of how much you can borrow. However, pre-approval is not final, as full loan approval is only granted closer to settlement when the lender assesses the completed property’s value and your financial situation at that time.

Throughout the construction period, buyers should monitor interest rate changes and lender policies. Some banks and lenders offer extended pre-approvals for off-the-plan purchases, which can provide additional security. It is important to stay in contact with your mortgage broker or lender to ensure you remain financially prepared for settlement.

Government Grants and Incentives

Government grants and incentives can significantly reduce the cost of purchasing an off-the-plan property. For first-home buyers, the First Home Owner Grant (FHOG) provides financial assistance for new builds. Applications for this grant are typically submitted once settlement is near and eligibility requirements vary by state.

The Victorian Government has introduced a temporary off-the-plan land transfer (stamp) duty concession, effective from 21 October 2024 for 12 months. This initiative offers significant savings for all buyers, including investors, companies and trusts, making off-the-plan properties more accessible.

Stamp duty concessions may also be available depending on the purchase price and state regulations.

Tax Benefits for Investors

Investors purchasing off-the-plan properties can take advantage of several tax benefits that make this type of investment more appealing. One of the key advantages is depreciation deductions, which allow investors to claim tax deductions on the wear and tear of the building and its fixtures over time. Under the capital works deduction, investors can claim up to 2.5% of the construction cost annually for up to 40 years, reducing their taxable income.

Additionally, investors can claim negative gearing benefits, where any shortfall between rental income and loan repayments can be offset against other taxable income, leading to potential tax savings. Stamp duty concessions may also apply in some states for off-the-plan purchases, further reducing upfront costs.

Another financial advantage is the capital gains tax (CGT) discount. If an investor holds the property for more than 12 months before selling, they may be eligible for a 50% discount on CGT, significantly reducing the tax burden on any capital gains made upon sale.

Foreign Buyers and Regulatory Changes

Foreign buyers have additional financial considerations when purchasing off-the-plan properties in Australia. They must pay an Additional Stamp Duty, which in Victoria is currently set at 8%. Financing requirements for foreign buyers are stricter, with some lenders requiring a larger deposit - often between 30% and 40% of the purchase price. Additionally, foreign buyers must obtain approval from the Foreign Investment Review Board (FIRB) before purchasing property in Australia.

However, recent regulatory changes will impact foreign investment in Australian real estate. From 1 April 2025 to 31 March 2027, foreign investors will be banned from purchasing established homes as part of government efforts to address the housing crisis and prioritise local buyers. While foreign buyers can still purchase new dwellings, they must adhere to stricter rules, including limits on ownership percentages within developments and requirements to develop any vacant land they acquire within a specified timeframe. Additionally, foreign owners of properties left vacant for more than six months per year will be subject to an annual vacancy fee.

These changes mean that foreign investors looking to enter the Australian property market should focus on off-the-plan and new developments. Prospective buyers should ensure they understand the latest regulatory requirements and financing constraints before committing to a purchase.

Final Loan Approval and Settlement

As the project nears completion, lenders require updated financial documentation to confirm that your borrowing capacity remains unchanged. A property valuation is conducted to ensure that the completed property aligns with market expectations. If the valuation comes in lower than expected, buyers may need to cover the shortfall with additional funds.

Final loan approval is granted once these checks are completed, allowing buyers to proceed with settlement. Ensuring that your financial situation remains stable throughout the construction period will help facilitate a smooth approval process.

Key Considerations

Market fluctuations can impact property values and lending criteria over time, affecting your borrowing capacity. Interest rates may also change during the construction period, influencing the affordability of your mortgage repayments. It is important to stay informed about market trends and lender policies to adapt to any changes that may arise.

Seeking legal and financial advice throughout the process can help buyers understand their rights and obligations. Consulting with a solicitor, mortgage broker or financial advisor ensures that you are well-prepared for each stage of the purchase.

Navigating finance for an off-the-plan purchase requires careful planning and awareness of key timelines. By understanding deposit requirements, financing processes, tax benefits and available government incentives, buyers can make informed decisions and confidently secure their property.

At Norus Projects, we’re committed to guiding buyers through each stage of their off-the-plan journey. If you have questions about financing or available properties, get in touch with our team today.

*Please refer to the Federal and State Government websites for further information. Terms and Conditions apply to any other promotions that may be contained within this communication. Please enquire within and check with the vendor and agent for further terms and conditions. Only one promotion can be used per purchase and can not be used in conjunction with any other promotions. The information contained herein is given for general information purposes only and it is subject to change. Readers, viewers and consumers are advised to perform their own research and investigations and obtain their own financial, legal and other advice. The information and materials do not form any representation by any vendors or agents of any vendors and may include third-party opinions that do not represent the opinion of any vendor or agent. They do not form part of any contract of sale and they do not constitute legal, financial, real estate or other advice and must not be regarded or relied upon as such. No warranty is given either expressly or implied and the vendors or agents do not assume liability for negligence or otherwise with respect to the contents herein. Any plans are yet to have had their structural and services review so are subject to change prior to completion of construction. All plans, dimensions, areas and particulars herein whether by measurements or visual representation are approximate only, for general information only, and do not constitute any representation by the vendor or its agents or representatives. They do not form part of any contract of sale. Changes will undoubtedly be made during development and dimensions, fittings, finishes and specifications are therefore subject to change. Any furniture, goods and chattels depicted in this document are not included with any sale. Prospective purchasers or lessees are advised to not to rely on the information contained herein and to satisfy themselves as to the accuracy of all information given by making their own inspections, searches, inquiries and advises or as is otherwise necessary. The vendor or its agents or representatives will not be responsible for any error or misdescription which may appear. Further, the vendor or the developer or their agents or representatives do not represent, warrant and/or guarantee that the integrity of this communication has been maintained or that the communication is free of errors, virus, interception or interference. Usage of this or any other websites and materials and any associated website or material is subject to further terms and conditions.