The main differences between buying off the plan and building on your own land are flexibility, risk and how the loan is funded. Off the plan, the developer funds the build and you settle in full at completion, with limited design choice. With land and construction, you choose the land and builder, and the loan is paid out in stages as the home is built.

What does buying off the plan mean?

You agree to buy a property before it is built, often an apartment or townhouse in a larger project. You usually pay a deposit (commonly 10%) when you sign, and the balance is due at settlement once the building is complete and an occupancy permit is issued.

The developer or builder uses their own funding to build. You do not draw down a loan during construction. Your home loan only settles at the end.

Pros: no repayments during the build, one settlement, a fixed price at contract date.
Cons: little say over the floor plan or finishes, settlement can be years away, and the property may value lower or higher than the contract price at completion.

What does land and construction mean?

You buy a block of land and sign a separate contract with a builder of your choice. You decide the size of the block, the design and the builder.

The finance is split: the land loan settles first, then the construction loan is paid out in progress payments at each stage of the build (base, frame, lock-up, fixing and completion).

Pros: full flexibility on land, design and builder, and you can watch the home take shape.
Cons: more paperwork, interest repayments during the build, and you carry more of the risk of delays and variations.

How is the risk different?

Off the plan, the builder carries the construction funding risk, but you carry valuation risk. If the market falls before completion, the bank may value the property below your contract price and you will need to cover the gap.

With land and construction, the lender checks each stage before paying, so the loan grows with the value of what is built. The risks are delays, cost overruns and variations, which usually come out of your savings.

A typical Melbourne scenario

Hannah is choosing between a $650,000 off-the-plan townhouse in Box Hill, completing in two years, and a $330,000 block in Clyde North with a $360,000 build.

Off the plan, she pays a $65,000 deposit now and nothing more until settlement, but she cannot change the layout and must be ready for a valuation in two years’ time.

With the land and build, she settles on the land in a few weeks, then pays interest that rises through the build. She gets the four-bedroom layout she wants and chooses her own builder, but needs a buffer for rent and variations.

Which one suits you?

• Want certainty about cash flow now? Off the plan can suit, with no construction repayments.

• Want control over design and location? Land and construction gives you more choice.

• Short on time to manage a build? Off the plan is simpler.

• Worried about market changes? Land and construction is valued as it goes; off the plan is valued at the end.

Key takeaways

• Off the plan: one settlement at completion, limited choice, valuation risk at the end.

• Land and construction: staged progress payments, full flexibility, more to manage.

• Your deposit, timeline and appetite for risk should drive the choice.

Read how progress payments work and how banks manage fixed-price build contracts, or see our construction loans, house and land package loans and first home buyer pages.

General information only. This article does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and seek personal advice before acting. Elephant Financial Pty Ltd trading as Elephant Advisory is an authorised credit representative (ACR 487962) of Yellow Brick Road Aggregation Pty Ltd (formerly Vow Financial Pty Ltd) (ABN 66 138 789 161), Australian Credit Licence 390261.