We are often asked whether buying a off-plan or under construction property, is a good investment.
Naturally home owners and investors alike are hesitant to invest in a property you have not even seen or which is currently under construction and you want to ensure that you making the right decision before investing your hard earned cash or taking out a mortgage loan / Bond on a property.
We’ve identified a number of things to consider before making your decision.
Before we do that, let’s explore what buying an off-plan property is. Buying off-plan means buying a property before it has been built, and basing your purchasing decision on the developer’s vision. This is sometimes demonstrated through a show unit which is an example of the type of unit you can purchase.
Off-Plan properties are bought based on an agreement that they will be completed in the future, typically between one and five years.
A deposit and finance approval in principle is required to demonstrate that you can afford the property and that the developer can go ahead and put money into constructing the property.
The developer cannot access your deposit or finance until the property is completed, transferred and registered in your name.
Now that we have a basic overview of what buying an off-plan property is. Let’s explore some items which you should consider prior to making the leap.
Risks when buying off-plan
- A big risk is Investors not ensuring that their deposits are paid into the lawyers trust account.
- The property may take longer to finish than was initially planned by the developer. This could pose a major obstacle to new owners, who may have to find another alternative accommodation to live in, until the construction is complete.
- The market prices could drop between the time from signing the contract and taking ownership of the property. Even if this is unlikely, it is risk factor that investors need to take into consideration.
- Many people are unable to envision the completed unit from the artists’ impressions and architectural plans. This is one of the major pitfalls of buying off-plan, and many buyers have been disappointed with the final property.
- The final property may look different to those presented in the original plans, for several reasons. This can be because of unavailability of materials, or necessary engineering or architectural changes that needed to be made during construction.
- There is a risk that once the property is completed it won’t be what you envisioned or it is impractical, unappealing, or unsightly, making it difficult to rent out, and difficult to sell.
- There are usually costs applicable if a buyer wants to exit from the Off-plan contract for whatever reason, provided the suspensive conditions have been met. Developers are usually not obliged to allow buyers to cancel their contract unless the Developer has not met his obligations.
Benefits of Buying Off-Plan Property
- Buying an off-plan property is a great way to start your investment portfolio as they are very often more affordable than what is available in the same area and provides the buyer with a great opportunity to invest in property at a below market price.
- The sales price is calculated based on the market price at the time you purchase the property therefore you will be buying the property at today’s property prices with a discount considering it is not complete and the when you take transfer and start to repay the bond, the property value should have increased by as much as 20% to 35%.
- If a developer is unable to complete the project timeously, your property value keeps increasing with no costs for your account.
- These properties are often located in upcoming neighbourhoods with excellent infrastructure and facilities.
- The units in new developments are often constructed in line with the latest design trends, which means the buyer will have a modern and appealing unit to present to the rental market.
- The Developer typically use the latest construction technology and building materials, which results in the increased longevity of the investment.
- There are no crucial repairs and extensive maintenance to be done for at least three to four years since the building and its fixtures and fittings are brand new.
- The property comes with warranties from the manufacturers (e.g. appliances warranty) and the National Home Builders Registration Council (NHBRC).
In our opinion buying an off-plan property is a great way to get into the property market at a fraction of the market price. You need to ensure the developer has a track record and consider all the risks and benefits. Once you’ve covered all the bases, you can most certainly benefit from the increase in value regardless of whether interest rates go up or down.