Do you know off-the-plan purchases work differently?

Understanding Off-the-Plan Purchases for First Home Buyers

Buying off-the-plan means you sign a contract to purchase a property before it is built or fully completed. The contract is signed now, but settlement occurs months or sometimes years later, once construction finishes. This delay between contract and settlement creates distinct financial and administrative considerations that differ from purchasing an established home.

For buyers in Aintree, where off-the-plan townhouses and medium-density developments continue to be released across the suburb, understanding how these purchases work is essential. The Victorian off-the-plan concession allows duty to be calculated on the land value at contract date only, provided the contract is signed on or before 31 October 2026 for properties not yet titled or substantially completed. This can result in significant savings compared to purchasing an established home at the same total price.

Consider a buyer signing a contract in mid-2026 for an off-the-plan townhouse in Aintree. The total purchase price is $620,000, but the land value at contract date is assessed at $180,000. Under the Victorian off-the-plan concession, duty is calculated on $180,000 rather than the full contract price. Because the buyer is a first home buyer and the property will be their principal place of residence, they also qualify for the first home buyer duty exemption, which provides a full exemption on properties valued up to $600,000. In this scenario, no stamp duty is payable. Without the off-the-plan concession, duty would be calculated on the full $620,000 contract price, and the buyer would pay a reduced amount under the sliding scale concession that applies between $600,001 and $750,000.

How Lenders Assess Off-the-Plan Properties

Lenders assess off-the-plan purchases based on the contract price and the estimated value of the completed property. Because the property does not yet exist, the lender relies on the contract, the developer's plans, and a valuation based on comparable sales of similar completed properties in the area. The lender's valuation may differ from the contract price, particularly if the market has shifted between contract date and the time you apply for finance.

If the lender's valuation comes in lower than the contract price, your deposit requirement increases. Most lenders require a minimum 10% deposit for off-the-plan purchases, though some will accept 5% under the Australian Government 5% Deposit Scheme. If you have contracted to purchase at $620,000 with a 10% deposit of $62,000, but the lender values the completed property at $590,000, the lender calculates your loan-to-value ratio based on $590,000. Your $62,000 deposit now represents approximately 10.5% of the lender's valuation, which still meets the minimum requirement. However, if the valuation shortfall is larger, you may need to increase your deposit or renegotiate the contract.

Deposit timing also differs. Most off-the-plan contracts require a 10% deposit to be paid on exchange, with the balance due at settlement. Settlement typically occurs 12 to 24 months after signing, depending on the construction timeline. Some developers allow the deposit to be paid in stages, with an initial 5% on exchange and the remaining 5% within 30 or 60 days. You must have access to the full deposit amount required by the contract terms, and these funds need to be available in the required timeframe, not just by settlement.

First Home Buyer Concessions and Off-the-Plan Purchases in Victoria

Victorian first home buyers purchasing off-the-plan can access the $10,000 First Home Owner Grant if the property is valued up to $750,000 and is a new home. The property must be substantially completed or never occupied as a place of residence. Most off-the-plan townhouses and apartments meet this definition, but the contract and settlement terms must align with the eligibility criteria.

The first home buyer duty exemption or concession applies separately. A full exemption is available on properties valued up to $600,000, with a sliding scale concession on properties valued from $600,001 to $750,000. When combined with the off-the-plan concession, duty is calculated only on the land value at contract date, which is typically far lower than the completed property value. This combination can eliminate duty entirely for many off-the-plan purchases in Aintree, where land value at contract date is often assessed below the $600,000 threshold even when the total contract price exceeds it.

Buyers must move into the property within 12 months of settlement and live there as their principal place of residence for at least 12 continuous months to retain eligibility for the duty exemption. Because settlement occurs well after contract signing, this residency requirement begins once the property is complete and title transfers, not from the contract date.

Pre-Approval and Finance Clauses for Off-the-Plan Contracts

Obtaining pre-approval before signing an off-the-plan contract is strongly recommended, but pre-approval does not guarantee final loan approval. Pre-approval is typically valid for three to six months, but off-the-plan settlements can occur 12 to 24 months after contract signing. By the time settlement approaches, your financial circumstances, the lender's policies, or prevailing conditions may have changed.

Most off-the-plan contracts include a finance clause, which allows you to withdraw from the contract if you cannot obtain loan approval within a specified period, usually 30 to 45 days from signing. This clause protects you if a lender declines your application or offers less favourable terms than anticipated. However, the finance clause expires well before settlement, so you must apply for and secure conditional loan approval during that initial period.

In a scenario where a buyer signs a contract in August 2026 for an Aintree townhouse settling in mid-2027, the finance clause requires loan approval by late September 2026. The buyer applies during that window, receives conditional approval, and satisfies the clause. However, the lender's final approval is issued closer to settlement, once construction is complete and a final valuation is conducted. If the buyer's income has reduced, they have taken on additional debt, or the property valuation falls short, final approval may be affected. Maintaining stable financial circumstances between contract and settlement reduces this risk.

Using the Australian Government 5% Deposit Scheme for Off-the-Plan Purchases

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance. The scheme applies to off-the-plan purchases, provided the property meets the eligibility criteria and the contract price falls within the applicable price cap. For Victoria, the price cap for capital city and regional centres is $950,000, and for other areas it is $650,000. Aintree falls within the Melbourne metropolitan area, so the $950,000 cap applies.

Applications must be made through a participating lender. Not all lenders participate in the scheme, and those that do may have different policies regarding off-the-plan purchases. Some lenders require a 10% deposit for off-the-plan properties regardless of the scheme, while others will accept 5% under the scheme's terms. Confirming your chosen lender's approach before signing a contract is essential.

The scheme does not impose income caps or annual place limits. However, both the purchase price and the lender's assessed value of the property must be at or below the applicable price cap. If you contract to purchase at $900,000 but the lender values the completed property at $970,000, the application may be declined under the scheme due to the valuation exceeding the cap. Conversely, if the lender's valuation is lower than the contract price but still within the cap, the scheme remains accessible, though your deposit percentage relative to the valuation will increase.

What Happens Between Contract and Settlement

Once you sign the contract and pay the initial deposit, the developer begins or continues construction. You are not required to make further payments until settlement, unless the contract specifies staged deposit payments. During this period, you should monitor the construction progress, maintain your financial position, and prepare for settlement costs.

Settlement costs include the balance of the purchase price, legal fees, building and pest inspection costs if applicable, connection fees for utilities, council rates adjustments, and any additional lender fees. These costs are payable at settlement, not at contract signing, so you need to budget for them separately from your deposit. For many buyers, this means continuing to save during the months or years between contract and settlement.

You should also confirm your loan structure and features well before settlement. Offset accounts, redraw facilities, fixed and variable rate options, and repayment flexibility vary between lenders and home loan options. Buyers sometimes focus heavily on securing approval and overlook the ongoing features of the loan they will hold for years. Reviewing your loan structure during the months leading up to settlement allows time to adjust your approach if your circumstances or priorities have changed since contract signing.

Managing Risk in Off-the-Plan Purchases

Off-the-plan purchases carry specific risks that do not apply to established homes. Construction delays can push settlement dates back by months, requiring you to extend rental arrangements or delay your move. Market value fluctuations between contract and settlement can result in the completed property being worth less than the contract price, which affects your equity position from day one. Developer insolvency, though uncommon, can result in incomplete projects and significant financial loss.

Victorian law requires developers to provide a sunset clause in off-the-plan contracts, which allows either party to withdraw if settlement does not occur by a specified date. This clause protects you if construction is significantly delayed, but it also allows the developer to withdraw if property values rise and they wish to resell at a higher price. The sunset date is negotiable, and buyers should seek legal advice before signing to confirm the clause provides adequate protection.

You cannot insure the property until settlement, as you do not yet hold title. The developer's insurance covers the structure during construction, but your contents and liability are your responsibility once you move in. Confirming the settlement date well in advance allows you to arrange insurance coverage to commence from the day title transfers.

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