Buying Off-the-Plan in Australia — Risks, Rewards, and Finance (2026)

Updated

Buying Off-the-Plan in Australia — Risks, Rewards, and Finance (2026)

Buying off-the-plan means purchasing a property before it is built — from architectural plans or a display suite. It can offer advantages for buyers and investors but also carries significant risks that established property purchases do not.

How Off-the-Plan Purchases Work

  1. You sign a contract to purchase a property that does not yet exist (or is under construction)
  2. You pay a deposit — typically 10% of the purchase price, held in trust
  3. Construction period — can range from 12 months to 4+ years
  4. Settlement — occurs when the building is complete (a Certificate of Occupancy or similar is issued)
  5. Finance is arranged at settlement — most banks will not formally approve a loan until closer to the settlement date

The Finance Process for Off-the-Plan

This is where off-the-plan differs significantly from buying an established property:

At exchange:

  • You need only the deposit (typically 10%)
  • No formal loan approval is required at this stage
  • Some lenders offer “indicative” pre-approvals, but these are not binding

6–3 months before settlement:

  • Begin your formal finance application
  • The lender will order a valuation of the completed (or near-complete) property

At settlement:

  • Your loan must be formally approved and funds available
  • If financing falls through, you risk losing your deposit

Critical risk: If you cannot obtain finance at settlement — for any reason — you are in default of the contract and the developer can keep your deposit.

Valuation Risk — The Biggest Finance Risk

Between exchange and settlement (sometimes 3–4 years), property markets can move significantly. The lender’s valuation at settlement is based on the property’s value on the day, not the contract price you agreed to years earlier.

If the valuation is lower than the contract price:

  • Your LVR is calculated on the lower of contract price and valuation
  • You may need a larger deposit to make up the difference
  • In some cases, the loan required exceeds what the lender will approve on the valuation

Example:

  • Contract price (2023): $700,000
  • Valuation at settlement (2026): $650,000
  • Deposit paid: $70,000 (10%)
  • Loan needed: $630,000
  • Maximum LVR (80%): $520,000 on $650,000 valuation
  • Shortfall: $110,000 (you would need to find this additional cash or source LMI-backed lending above 80%)

This scenario is not hypothetical — it happened to significant numbers of buyers in Melbourne and Brisbane apartment markets during the 2017–2019 period.

Sunset Clauses — Protecting the Developer, Not You

All off-the-plan contracts include a sunset clause — a date by which the building must be completed. If the developer cannot complete by this date:

  • In some states, the developer can rescind the contract and return your deposit
  • You receive your deposit back but lose the opportunity cost of having that money locked up for years

Historically, some developers deliberately delayed completion to rescind contracts and re-sell at higher prices in rising markets. Australian states have introduced reforms to address this — check current law in your state as this area has evolved.

Developer Risk

If the developer becomes insolvent before completion:

  • Your deposit (held in trust) should be protected — check the contract for trust account details
  • The project may be taken over by a new developer (potentially with delays and changes)
  • In the worst case, the project is abandoned and legal proceedings may be required

How to reduce developer risk:

  • Choose developers with a strong track record of completed projects
  • Check for unconditional DA approval before exchange
  • Review the developer’s financial position (large, established developers carry less risk)
  • Confirm your deposit is held in a statutory trust account

Stamp Duty Benefits

One of the main reasons buyers consider off-the-plan purchases is stamp duty concessions available in some states:

  • In several states, duty is calculated on the contract price minus the construction component — meaning you pay duty only on the land portion (lower effective rate)
  • First home buyer concessions are often available in off-the-plan purchases

Stamp duty rules vary by state and change frequently — check with your state revenue office or a solicitor.

New vs Completed Off-the-Plan — Depreciation

For investors, a new property offers greater depreciation deductions than an established property:

  • Capital works deduction (Div 43): 2.5% of the construction cost per year for 40 years
  • Plant and equipment (Div 40): Depreciation on fixtures, fittings, carpet, appliances

These can significantly reduce taxable rental income, particularly in the early years. Speak with a registered tax agent about your specific situation.

Frequently Asked Questions

Can I get a home loan to buy off-the-plan?

Yes — but formal approval comes closer to settlement (typically 90 days before completion). Most lenders will not bind themselves to a rate or product years in advance.

What happens if my circumstances change between exchange and settlement?

If your financial position worsens (job loss, increased debt, change in lending criteria), you may not qualify for the required loan at settlement. You would be in default of the contract and at risk of losing your deposit. This is a real risk for long settlement periods.

Are off-the-plan apartments a good investment?

This depends on location, pricing, developer, and market conditions — and cannot be generalised. Off-the-plan apartments have historically underperformed established property in some markets, particularly where oversupply occurred. Past performance does not predict future results.

This article provides general information about buying off-the-plan in Australia. Off-the-plan purchases carry significant risks — seek independent legal advice before signing any contract. For mortgage advice, find a licensed broker through MoneySmart.