Off-the-plan investing — the risks people skip

The central feature of an off-the-plan contract is time. You sign now and settle when the building is complete, which may be one, two or three years away. Your income, your lending, interest rates and the market can all be different by then, and your contract generally won't care.

Lenders value the property at settlement, not at signing. If the valuation comes in below the contract price, the lender lends against the lower figure and you must fund the difference in cash. That is the single most common way an off-the-plan purchase hurts a household.

Ask yourself directly: if the valuation landed 10 per cent short, could I settle? If the answer is no, the risk is not theoretical.

A pre-approval is not a guarantee of funds at settlement. Lending policy tightens and loosens, assessment rates move, and your own position may change — a new child, a change of job, a car loan. The borrowing power guide explains what lenders reassess.

• Completion dates slip; your rent doesn't start until it's finished.
• Finishes, layouts and sizes can vary within tolerances set by the contract.
• Sunset clauses allow termination in certain circumstances — read yours carefully.
• Defect rectification after handover can take time and patience.

Have your own conveyancer or solicitor read the contract before you sign. Not the one suggested by the seller.

Rental guarantees, projected yields and depreciation benefits are commonly used to make a price look reasonable. Treat a guarantee as what it is — a promise from a party whose capacity to honour it in three years you cannot verify — and check the projected rent against comparable leases in the same area today.

A useful habit: strip out every projection and ask whether the property still makes sense on today's evidence. Sketch it with the holding costs estimator.

Off-the-plan stock arrives in batches. If several hundred similar apartments settle in the same precinct within months of each other, both rents and resale prices can feel it. Look at what else is approved and under construction nearby, not just at your own building.

Established property isn't automatically better, and there are competent developers doing careful work. But if the appeal of off the plan is mainly that the deposit is small and settlement is far away, that's worth examining. Compare it honestly against an established option using the checklist and the question list.

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