Avoid These 5 Mistakes When Buying Commercial Off-the-Plan

Buying commercial property off-the-plan exposes you to financing risks that don't exist with established assets.

Lenders assess valuation risk differently when no building exists yet, and settlement can arrive years after your initial approval expires. The structure you choose at the start determines whether you can settle without scrambling for additional equity or accepting terms that restrict how you operate the property once built.

Committing to a Purchase Without Pre-Approval Tied to Completion Timeline

You need pre-approval that accounts for the expected completion date, not just your current circumstances. A pre-approval issued now may expire 12 or 18 months before the building is ready, leaving you to reapply under different lending conditions, interest rates, or personal financial circumstances. Lenders require a valuation at settlement, and if the completed property values below contract price, you may need to find additional deposit funds to meet the lender's LVR requirement.

Consider a buyer purchasing a small warehouse unit in the Northmead industrial precinct off-the-plan for $850,000 with a 30% deposit. They obtained pre-approval based on current income and planned to use the property for their logistics business once completed. Two years later at settlement, their business had scaled back due to market conditions, reducing their cashflow. The lender reassessed and required a higher deposit due to the changed income position. The buyer had to inject an extra $70,000 in equity to settle, which strained working capital at a time when the business needed it most.

Work with a broker who understands commercial property finance timelines and can structure pre-approval with lenders that allow extensions or can reassess closer to completion without penalising you for timing outside your control.

Assuming the Valuation Will Match the Contract Price

It often doesn't. Lenders commission an independent valuation at settlement based on the completed property, not the price you agreed to pay years earlier. If the valuer assesses the property at $750,000 and you committed to $850,000, the lender will calculate your LVR on the lower figure. A 70% LVR on $750,000 means the lender will offer $525,000, not the $595,000 you expected based on contract price. You must find the shortfall, or the purchase falls through.

This risk is higher in markets with long construction timelines or where comparable sales data is thin. Northmead's commercial market includes a mix of older industrial stock and newer strata units, which can make valuations variable depending on what the valuer selects as comparables. If your off-the-plan unit is in a new development with no direct comparables, the valuer may reference older, lower-value properties nearby.

Instructing your own independent valuer before contracting, or at least before paying the full deposit, gives you a realistic view of whether the contract price aligns with market value. If it doesn't, renegotiate or walk away before you're locked in.

Locking in a Fixed Rate Too Early in the Construction Phase

You cannot draw down a commercial loan until settlement, but some buyers try to lock in a fixed rate months or even a year before completion. Most lenders will not hold a fixed rate for that long without the loan being active, and if they do, the rate is often higher to compensate for the extended lock period. If the completion date is delayed, your rate lock may expire, forcing you to reapply at whatever the current rate is.

Variable rates give you flexibility to settle when the property is actually ready, and you can convert to a fixed rate after settlement if that suits your cashflow planning. Trying to time the interest rate market a year in advance usually costs more than it saves, especially when construction timelines shift.

Ignoring GST and How It Affects Your Deposit and Loan Amount

Commercial property purchased off-the-plan is typically sold inclusive of GST, which the developer remits to the ATO. If you're registered for GST and the property will be used in a GST-claimable business, you can claim the GST component back after settlement. However, you still need to fund the full purchase price upfront, including GST, which increases the amount of deposit and loan funds required at settlement.

For an $850,000 contract price, $77,273 is GST. You need to borrow and deposit based on the full $850,000, then wait for the ATO to refund the GST portion after you've settled and lodged your Business Activity Statement. That refund might take weeks or months, during which your funds are tied up. Some buyers don't budget for this and find themselves short on working capital immediately after settling.

If you're not registered for GST or the property will be used for GST-exempt purposes, you cannot claim the GST back at all, which increases your effective purchase cost. Your broker should clarify this with you and your accountant before you sign anything, as it directly affects how much you need to borrow and whether the purchase makes financial sense.

Structuring the Loan Without Considering Future Tenancy or Business Use

Lenders assess commercial loans based on either rental income or business cashflow, depending on whether the property is owner-occupied or leased to a tenant. If you're buying off-the-plan with the intention to lease it out, the lender will want to see a signed lease or strong evidence of rental demand before they approve the loan. If you plan to occupy it yourself, they'll assess your business's ability to service the loan while covering occupancy costs.

The mistake is structuring the loan as owner-occupied when you might lease it out within a year, or vice versa. Lenders treat these scenarios differently, and switching from one to the other after settlement can trigger a loan restructure, revaluation, or even a requirement to refinance. In Northmead, where some business owners purchase small commercial units in mixed-use developments along Boundary Road or near the industrial area off Kleins Road, the decision to occupy or lease often changes as the business grows or contracts.

In our experience, buyers who purchase with flexible loan terms and discuss both scenarios with their lender upfront avoid complications later. Some lenders allow you to switch between owner-occupied and investment use without a full restructure, but only if that flexibility is built into the loan terms at the start. If your lender doesn't offer that, refinancing to one that does before settlement can save you significant cost and time down the line.

Your loan structure should also account for whether you'll eventually want to build a commercial property portfolio, refinance to release equity, or sell within a few years. Off-the-plan purchases often form part of a longer-term strategy, and the structure you choose now should support that, not lock you into terms that make future moves more difficult or expensive.

Call one of our team or book an appointment at a time that works for you. We'll review your contract, assess lender options that suit off-the-plan timelines, and structure the finance to match how you'll actually use the property once it's built.

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