Why Buying Property Off The Plan Is A Wise Investment Choice
Investing in the property market is still one of the soundest ways to put your money to work in Australia. But it’s neither foolproof nor a sure-fire way of guaranteeing wealth and a secure financial future for you and your family. To ensure your investment is effective, you will need to ensure your property investment decisions are made wisely. As a first-time investor in residential property in Victoria, one of the best ways to invest wisely is buying property off the plan.
Off the plan? You mean buying something that doesn’t even exist yet? Exactly – and here’s why it could be the property investing decision with the greatest financial gains for you.
Full depreciation benefits
Turning the key in a brand new home, having picked the layout, style, decor and even the colours that are exactly to your desired specifications, is not the only benefit when it comes to buying off the plan.
In truth, one of the biggest benefits is how your investment relates to the tax system. Because you’re buying your property as an investment, the Australian Taxation Office allows you to claim depreciation due to wear and tear, not only on things like all those new brand new fixtures and fittings, but also when it comes to the actual building structure itself.
Depreciation is a particularly valuable tax deduction when buying off the plan because it actually generates rather than simply saves you money – in other words, you don’t need to spend anything extra in order to claim it back. And not only that, because the property is brand new, off the plan investors can claim the highest possible amount of deductions for the building structure over the entire decades-long life of the property, saving you today and long into the future.
If you aren’t convinced that these full depreciation benefits sound like a major saving, then think again: in a first-year depreciation claim, a typical off the plan investor will legitimately get back something in the range of between $7,000 and $15,000 in tax deductions. And when you’re investing for the sole purpose of making money, that’s an awful lot.
Stamp duty concessions
Land transfer tax, otherwise known as stamp duty, can be a major expense when buying property. But property investors in Victoria are particularly lucky, because the state government offers a concession on this stamp duty whether you intend to live in the property or only use it as an investment or to generate income. It means that stamp duty concessions in Victoria are arguably the best reasons to buy off-the-plan, because the savings can be enormous.
Victoria calculates the stamp duty payable on off-the-plan properties based not on the total value, but only on the ‘improved’ value of the land. This means the difference between the stamp duty payable on an off-the-plan property versus an established property can be almost $20,000 for a purchase price of $500,000. So, for a first-time investor, it can not only get you into the market in the first place, but make your investment arguably the best possible choice for your future.
Potential for capital gains
Capital gains – getting more money for your property than you bought it for – is, of course, one of the main reasons for choosing to invest in property in the first place. But the potential capital gains benefits of buying off-the-plan are even greater.
When you you’re buying property off the plan and sign on the dotted line, you’re locking in your purchase price on that date by paying the deposit. So, when the value of properties is rising, as they are today, it means that down the road – by the time the house is actually built and you turn the key – you will already own a property that is worth more than what you paid for it.
The potential for capital gains during the construction phase is particularly high when the property is being built in a development. By the time you’ve got the keys, local infrastructure like parks and schools may have improved, and the street appeal could be much higher due to the fact that other properties have now been built, all with pretty, established gardens, for example. So, while the developer may not have undervalued the off-the-plan price, your re-sale value could be much higher simply through the passing of time.
The huge potential savings in depreciation, stamp duty and capital gains can be substantial enough for a first-time investor to even consider purchasing a second investment.
Longer settlement times
There are other benefits to buying off the plan, and not just the fact that off-the-plan prices can simply be much lower than buying established property.
Often, investors buying property off the plan have some flexibility when it comes to how the deposit is paid, with bank guarantees and bonds commonly accepted as alternatives to cash. And if cash is used, it is normally held in trust and invested, which could result in yet another financial windfall for you.
Another benefit is the long settlement times. If, for instance, there’s a long delay between paying the deposit and the start of actual construction, you can use that time wisely by saving money and perhaps not needing to borrow as much from the bank. Similarly, these long lead times can give you time to shop around on the market and get the best possible deal on your mortgage, saving you thousands in interest over the long term.
Benefit from your brand-new property
Another simple benefit that can save you thousands when buying property off the plan is hidden in the fact that your new property is – quite simply – brand new. This means it’s unlikely to need a new roof or hot water system any time soon. New homes are also subject to legislation and technological improvements that mean power bills will be cheaper, while things like your wall oven will be brand new and therefore highly energy-efficient.
New homes are also easier to maintain, while that smell of fresh carpet can attract significantly higher rents than comparable established properties which have often been bought at a higher price.