10 Things to Know When Buying Off-the-Plan as an Investor

Off-the-plan investment properties can lock in today's price while the market moves, but the time gap between contract and settlement can shift your borrowing position.

If you're on a permanent visa and considering an off-the-plan purchase, you need to understand how lenders assess these properties differently, what happens to your pre-approval during construction, and how proposed tax changes might affect your decision. The financing structure you put in place now will either support your investment strategy or limit it before you collect the first month's rent.

Lenders Treat Off-the-Plan Purchases Differently

Most lenders apply stricter lending policies to off-the-plan properties. They may require a higher deposit, cap the loan to value ratio at 80 per cent, or charge additional risk margins on the rate. Some lenders won't value the property above the purchase price, even if the market has moved up during construction. If you're buying in a high-rise precinct with more than 50 per cent investor sales in the development, some lenders will decline the application entirely or apply even tighter terms.

Consider a buyer on a permanent visa purchasing a two-bedroom apartment off-the-plan in a Brisbane suburb near the university precinct. The contract price is within the suburb's current median, and settlement is scheduled in 18 months. The lender applies a 10 per cent discount to the purchase price when calculating the loan to value ratio, meaning the buyer needs to find an extra chunk of deposit to stay under 80 per cent and avoid Lenders Mortgage Insurance. The buyer also discovers that three other lenders on their shortlist won't touch the development because more than half the units were marketed to investors offshore.

Your Pre-Approval Expires Before Settlement

Pre-approvals typically last three to six months, but off-the-plan construction can take 12 to 24 months or longer. When settlement approaches, you'll need to reapply, and lenders will reassess your income, expenses, debts, and the property's value. If your circumstances have changed, you've taken on new debt, interest rates have shifted, or serviceability buffers have tightened, you may no longer qualify for the amount you were pre-approved for. This is one of the most common points where off-the-plan purchases fall over, and it's entirely preventable with the right structure and regular check-ins.

We regularly see buyers who took out a car loan or increased their credit card limit during the construction period, unaware that even unused credit capacity is treated as a liability when lenders recalculate borrowing capacity. A $20,000 credit card limit with a zero balance can reduce your borrowing power by $80,000 or more depending on the lender's assessment rate.

Sunset Clauses Can Force a Sale or Extension

Every off-the-plan contract includes a sunset clause that allows either party to terminate if settlement hasn't occurred by a specified date. Developers may use this clause to walk away if the market has risen significantly, leaving you without the property and facing the task of recovering your deposit. Buyers can also use the clause to exit if the project is delayed and their circumstances have changed, but in a falling market, that might mean losing your deposit or facing legal costs.

Before you sign, read the sunset date carefully and make sure it allows enough time for realistic construction delays. If the clause is too tight, negotiate an extension or reconsider the purchase. Lenders won't care whether the developer or the buyer triggered the sunset clause. They'll just reassess the deal from scratch if you want to proceed with a different property.

Valuations at Settlement Can Derail Your Loan

When settlement approaches, the lender orders a valuation based on the completed property. If the valuation comes in below the purchase price, the lender will only loan against the lower figure. You'll need to make up the shortfall in cash, or the sale won't proceed. This is particularly common in areas where supply has increased during the construction period, or where the developer's pricing was optimistic relative to comparable sales.

In a scenario like this, a buyer contracts to purchase a one-bedroom apartment off-the-plan for $480,000 in a Gold Coast suburb near the light rail. At settlement, the valuation comes back at $455,000 because six similar apartments in the same building have sold in the past three months at lower prices. The buyer was relying on an 80 per cent loan, but the lender will now only lend 80 per cent of $455,000. The buyer needs an additional $20,000 in cash to settle, on top of the deposit already paid. They don't have it, and the sale falls through.

Rental Income Estimates Need to Be Realistic

Lenders will use rental income to support your investment loan serviceability, but they'll apply a haircut, usually taking only 80 per cent of the rental estimate and factoring in vacancy rates. If you've relied on the developer's projected rental return without checking comparable listings in the area, you may find the lender's assessment is lower than expected. That can reduce the amount you're approved for, or push you into a higher interest rate if your debt to income ratio climbs.

Rental yields on new apartments are often lower than established properties in the same area because of higher body corporate fees and the abundance of similar stock. Before you commit, check current listings for similar properties in the development or nearby buildings. If the developer's rental projection is more than 10 per cent above what's being advertised, adjust your numbers.

Interest Only Loans Are Common but Not Automatic

Many investors choose interest only repayments to reduce holding costs and maximise cash flow, particularly if they're relying on negative gearing to offset taxable income. Lenders will typically offer interest only terms for up to five years on investment loans, but approval isn't automatic. You'll need to demonstrate that you can service the loan on principal and interest repayments as well, even if you elect to pay interest only initially. Some lenders also apply a higher interest rate or lower loan to value ratio if you choose interest only.

If you're planning to claim the interest as a tax deduction and rely on negative gearing, keep in mind that proposed changes may limit your ability to offset losses against other income if the property is established rather than a new build. This won't affect the loan itself, but it will affect your after-tax position and should be factored into your decision before you sign the contract.

Proposed Tax Changes Favour New Builds

From 1 July 2027, the government intends to limit negative gearing on established residential properties, but new builds will retain the existing treatment. Off-the-plan purchases that add to housing supply and meet the definition of a new build will allow you to continue deducting losses against your other income. If you're choosing between an established property and an off-the-plan purchase, this may shift the balance in favour of the new build, particularly if you're a higher income earner who benefits from negative gearing.

Investors buying new builds will also have the option to choose between the 50 per cent capital gains tax discount or cost base indexation when they eventually sell. Established properties purchased after 12 May 2026 will only have access to indexation. Whether this benefits you depends on how long you hold the property and how inflation tracks over that period, but the flexibility is worth noting.

Construction Delays Can Blow Out Your Holding Costs

If the developer delays completion, you may be paying rent on your current property for longer than expected while also holding a contract on the investment. You can't claim any deductions until the property is available to rent, so extended delays increase your out-of-pocket costs without any offsetting tax benefit. Some contracts include penalty clauses for delays, but enforcing them is often more trouble than it's worth unless the delay is extreme.

Before you commit, check the developer's track record and ask your conveyancer to review the contract for any clauses that limit your recourse if the project overruns. If the developer has a history of delays, factor that into your cash flow planning or consider a different property.

Loan Structures Matter More Than Rate Alone

Investors often focus on securing the lowest interest rate, but the loan structure is just as important. You'll want the ability to redraw or offset surplus funds, make additional repayments without penalty, and refinance without discharge fees if your circumstances change or a more suitable product becomes available. Some lenders also allow you to refinance your investment loan into a line of credit or split your loan between fixed and variable rates, which can give you more flexibility as your portfolio grows.

If you're planning to build a property portfolio over time, ask your broker to structure the loan so that future purchases don't require you to refinance the entire portfolio. Keeping loans separate or using offset accounts strategically can protect your access to equity and make future applications smoother.

Settlement Is When You Need Cash, Not When You Sign

The deposit you pay at contract is typically 10 per cent, but the balance, plus stamp duty, legals, and any shortfall between the valuation and purchase price, is due at settlement. If you've budgeted based on the contract price and the valuation comes in lower, or if your loan amount is reduced because your circumstances have changed, you may not have enough cash to complete the purchase. This is when many buyers realise they've stretched too far.

Before you sign an off-the-plan contract, calculate the worst-case scenario: what if the valuation is 10 per cent under, your borrowing capacity drops by $50,000, and you need to cover the gap in cash? If that scenario would leave you with no buffer, either increase your deposit, reduce your purchase price, or wait until your position is stronger. Buying off-the-plan with tight margins is one of the fastest ways to end up in financial stress before the property even generates income.

Off-the-plan investing can work, but only if you're prepared for the time gap between contract and settlement, the lender's reassessment of your position, and the possibility that the market or your circumstances might shift. If you're on a permanent visa and considering an off-the-plan purchase, structure the loan to allow for change, keep your credit profile clean during construction, and stay in touch with your broker so you're not surprised at settlement. Call one of our team or book an appointment at a time that works for you.

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