Off-the-Plan Investment Loans Work Differently to Standard Property Finance
An off-the-plan investment loan is approved based on the property's value today, but you settle in 12 to 24 months when the build finishes. Your income, deposit and borrowing capacity all need to hold up until settlement, and the property needs to value at or above the contract price when the bank orders a final valuation.
In our experience, buyers around Nuriootpa and Tanunda who sign contracts for off-the-plan apartments in Adelaide or regional centres often assume the pre-approval they received at contract signing will still be available two years later. It usually won't. Pre-approvals expire after 90 days in most cases, and lenders won't issue formal approval until the property reaches practical completion. If your income drops, your deposit shrinks, or the finished property values below the purchase price, you may not be able to settle.
Consider a buyer who signs a contract for a $450,000 off-the-plan unit in a new development near Gawler's town centre with a 10 per cent deposit. At signing, their income supports the loan and the valuer estimates the completed unit will be worth $450,000. Eighteen months later, the buyer changes jobs and their new income is $15,000 lower. When the lender reassesses serviceability just before settlement, the buyer can no longer support the loan amount. The developer issues a notice to settle, and the buyer either needs to find a family guarantor, increase the deposit using savings or equity from another property, or risk losing the contract and the deposit they've paid.
Sunset Clauses Let Developers Walk Away if Construction Delays Stretch Too Long
A sunset clause is a date written into the contract after which either party can cancel if the property hasn't reached practical completion. The clause protects both buyer and developer, but developers often use it to exit contracts when market values rise and they want to resell at a higher price.
Most contracts include a sunset date 24 to 36 months from signing. If the developer lodges the plan of subdivision and reaches practical completion before that date, the contract continues and you're required to settle. If the developer doesn't meet the deadline, either party can walk away. Developers can also apply to extend the sunset date without your consent in some cases, and you'll need to check your contract and seek legal advice if you receive an extension notice.
The risk for investors is that you've locked in a price two years ago, planned your rental income around that purchase, and arranged your deposit. If the developer cancels under the sunset clause, you're back to the start and current prices may be higher. If values have fallen, some developers will push to complete and enforce settlement even if your property is now worth less than you agreed to pay.
Loan Serviceability Gets Tested Twice and Both Assessments Need to Pass
Your borrowing capacity is assessed when you apply for pre-approval and again when you apply for formal approval closer to settlement. Lenders calculate serviceability by assessing your income, expenses and existing debts, then applying a buffer of at least 3 percentage points above the loan interest rate. If your circumstances change between contract and settlement, your borrowing capacity can shrink.
Changes that reduce serviceability include switching to a lower-paid role, taking parental leave, adding new personal or car debt, or buying another property in the meantime. A $20,000 car loan or a $10,000 increase in childcare costs can reduce your maximum loan amount by $80,000 to $100,000 depending on the lender's assessment rate. Buyers who assume their pre-approval is locked in often find out a few weeks before settlement that the lender won't proceed.
You also need to account for the rental income when calculating serviceability. Lenders will include a portion of the expected rent as income, but they apply a shading factor (usually 80 per cent of the rent) and may also apply a vacancy buffer. If the development includes 40 identical units all settling within a three-month window, rental supply in that building or street floods the market and achieved rents can sit well below the original projections in the contract.
The Property Needs to Value at Contract Price or You'll Need a Bigger Deposit
The lender orders a valuation once the property reaches practical completion, just before settlement. If the valuation comes in below the contract price, the lender calculates your loan based on the lower figure and you'll need to make up the difference in cash.
An investor purchasing an off-the-plan townhouse in Freeling for $520,000 with a 10 per cent deposit has arranged a loan for $468,000. Two years later the development finishes, but the bank's valuer assesses the completed property at $485,000. The lender will now approve a maximum loan of 90 per cent of $485,000, which is $436,500. The buyer needs an additional $31,500 in cash at settlement to cover the shortfall, on top of the original $52,000 deposit and settlement costs. Many buyers don't have that amount available and the contract can fall through.
This problem is more common when buyer incentives, discounts or stamp duty concessions were included in the original contract price. The valuer assesses the property's market value, not the price you agreed to pay. If the developer inflated prices to cover rebates or incentives, the valuation will reflect the true market and you'll wear the gap.
Interest-Only Loans Help with Cash Flow but You'll Pay More Over Time
Most investment property loans are structured with an interest-only period for the first one to five years, then revert to principal and interest repayments. Interest-only repayments are lower, which helps when the rent doesn't cover the full loan repayment and you're negatively geared.
An interest-only loan also means you're not building equity through repayments, only through capital growth and any rent paid above your costs. If the property doesn't increase in value during the interest-only period, your equity position stays the same. When the loan converts to principal and interest, your repayments jump, sometimes by several hundred dollars per month, and you need to be confident the rent or your income can cover the increase.
For properties acquired after May 2026 that aren't eligible new builds, rental losses can only be offset against other residential property income from the 2027-28 income year onward under current legislation. Off-the-plan purchases contracted before May 2026 that settle after that date are generally grandfathered, but you should confirm your position with an accountant before you exchange contracts.
Strata Levies and Body Corporate Costs Aren't Always Disclosed Upfront
Off-the-plan apartments and townhouses in a community title development will have ongoing body corporate fees. The developer provides an estimate in the contract, but the actual levies are set by the owners corporation after settlement and can be significantly higher.
First-year levies often include costs to rectify defects, establish a sinking fund and cover insurance for a building that's brand new and may have latent issues. Buyers budget for $1,200 per quarter based on the developer's estimate, then receive a levy notice for $2,000 per quarter six months after settlement. That extra $3,200 per year reduces your cash flow and cuts into the return you forecast when you signed the contract.
You also can't claim body corporate fees as a tax deduction until the property is genuinely available for rent. If there are delays in getting an occupancy certificate or the building's common property isn't finished, you may be paying levies for months before you can advertise for tenants.
You'll Need to Cover Settlement Costs Upfront and Most Aren't Tax Deductible in the First Year
Settlement costs for an off-the-plan investment property include stamp duty on the purchase, legal fees, loan application and valuation fees, and potentially LMI if your deposit is below 20 per cent. Stamp duty is calculated on the full contract price, not the deposit, and is due at settlement.
Stamp duty for investors in South Australia is not discounted the way it is for first home buyers, so you'll pay the standard rate on the full purchase price. Legal fees for off-the-plan contracts are often higher than a standard purchase because the contract is longer, more complex and may require additional checks on the developer's financial position and the progress of construction. You should also budget for building and pest inspection costs once the property is complete, even though you're buying new.
LMI is the largest single cost for buyers with a deposit below 20 per cent. The premium is calculated on the loan amount and loan-to-value ratio, and is paid upfront at settlement (though it can be capitalised into the loan). It protects the lender, not you, and isn't refundable if you repay the loan or refinance within the first few years. For a $450,000 loan at 90 per cent LVR, the LMI premium might sit between $8,000 and $12,000 depending on the lender and insurer.
Formal Loan Approval Happens Weeks Before Settlement So Keep Your Finances Stable
You'll receive conditional or pre-approval early in the process, but formal approval and loan documents aren't issued until the property reaches practical completion and the lender has received a final valuation, council certificates and strata documentation. That formal approval happens four to six weeks before settlement in most cases.
During that final assessment, the lender will request updated payslips, bank statements and a credit check. Any change in your financial position since pre-approval will show up and can delay or derail the approval. Taking out new credit, missing repayments on existing debts, or having irregular deposits in your account can all trigger additional questions and requests for explanation.
Buyers who are self-employed face additional scrutiny because lenders often require updated financials or tax returns closer to settlement, and if your most recent year's income is lower than the previous year, your serviceability may no longer stack up. Keep your finances steady, avoid new debt and don't change jobs or reduce your hours in the six months leading up to settlement.
Call Bill Bell Finance Before You Sign the Contract
Off-the-plan contracts lock you in for one to three years, and your circumstances can change in ways that make settlement difficult or impossible. Get your structure right at the start. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I use a pre-approval from two years ago to settle an off-the-plan investment property?
No, pre-approvals typically expire after 90 days. Lenders reassess your income, deposit and borrowing capacity closer to settlement, and you'll need to meet their serviceability requirements at that time.
What happens if the property values below the contract price at settlement?
The lender will base your loan on the lower valuation, not the contract price. You'll need to cover the difference in cash at settlement or risk losing the contract and your deposit.
Are rental losses on off-the-plan investment properties still tax deductible?
For contracts signed before May 2026, rental losses are generally still deductible against all income under grandfathering provisions. Properties acquired after that date may be subject to new rules limiting deductions to residential property income only from the 2027-28 income year.
When does the lender issue formal approval for an off-the-plan investment loan?
Formal approval is issued four to six weeks before settlement, once the property reaches practical completion and the lender receives a final valuation and strata documents. Your finances are reassessed at that time.
What are sunset clauses and how do they affect my off-the-plan purchase?
A sunset clause is a date in the contract after which either party can cancel if the property isn't finished. Developers sometimes use it to exit contracts if property values rise and they want to resell at a higher price.
