There are risks associated with buying off the plan so seek legal advice before committing.

Purchasing property off the plan can be great for both the developers and the buyers. But there is a whole lot of extra homework you have to do and it comes with some different risks.

Going off the plan means you’re buying a property before it has been built, based on the plans. It usually happens with apartment or townhouse complexes.

Developers are always keen to start selling off the plan early and secure buyers to minimise their risk and keep their bank happy.

If you buy off the plan, you put down a deposit, then wait to see if the development gets approved.If it falls through then buyers get their deposits back. In most states, the maximum deposit that can be charged is 10 per cent of the total price, but it can be as low as 2 per cent. Timelines for completion are usually around one to two years.

The advantage for buyers committing early, despite the uncertainty, is that the sale price is often discounted and you may have greater choice on completion.

Another plus is that it allows buyers to buy an asset at today’s prices that may be more valuable down the track, when the development is completed. This might be two to four years after signing up. Of course, there is no guarantee the value will rise.

In a sharply rising property market, some investors buy off the plan (with a 10 per cent deposit), then sell before settlement and make a profit. Sounds good but it’s risky.

Developers tempt investors with rental guarantees, agreeing to find a tenant for the first year or two, or foot the rental bill if one can’t be found. Be careful, though, because these guarantees can be used to hike up the sale price.

Banks are quite happy to lend money to owner-occupiers and investors to buy properties off the plan. The same approval criteria apply to these loans as to lending for existing property. But investors intending to use rental returns to pay back the loan won’t find it as easy.