Author: Grant Smee
MD of Only Realty
9 July 2020
THE RISKS AND REWARDS OF BUYING OFF-PLAN
Buying-off-plan has made owning a brand-new home more affordable and accessible.
The repo rate is sitting at an unprecedented low and buyers and investors are caught between buying-off-plan versus buying an existing property. Grant Smee, Managing Director of Only Realty says that while buying-off-plan is an attractive investment opportunity, you need to do research before you purchase.
“These developments are well packaged, well marketed and offer everything that a buyer could need in a single gated community. There is however the risk of a developer ‘going bust’ or timelines changing due to a lack of finances, sales and uncontrollable circumstances such as the weather and most recently, lockdown”.
An appetite for risk will serve an off-plan buyer well. The financial benefits of buying into a development is a no brainer says Grant. “In fact, if everything goes to plan – and the market is right – then a buyer will make money on the property before they even move in.”
A buyer puts down a small deposit (generally R10 000 – R20 000) with no further payment required until the property is completed and transferred into their name.
New developments are normally phased, and each phase differs in price. Phase one is usually sold at the lowest price. “At this stage, there is no proof of concept or buyer confidence. Keep in mind that development financing can often only be activated once 70% of the units are sold so the need to entice buyers is critical” says Grant.
Grant says that this is standard practice, but you need to research the property developers, get references, and read through your ‘Offer to Purchase’ with a lawyer to understand all the factors involved.
When buying-off-plan, buyers are covered by the Consumer Protection Act (CPA) which provides buyers with a level of assurance in terms of the quality of the finishes and recourse relating to any deviation from the agreed upon plans.
Buying-off-plan versus buying an existing property
Negotiating – “We are seeing a lot of buyers flocking to existing properties in sought-after areas. In a buyers’ market, they can negotiate a great deal on properties that they perhaps couldn’t afford before”.
“Off-plan properties, on the other hand, leave little room for negotiation. Finances can however be saved while the property is being built and the property generally increases in value before you’ve even moved in”.
Financing – “The property costs, including VAT and all associated fees are 100% covered when buying off-plan. We are however still seeing lenient loan criteria by the banks with regards to on-plan (existing properties) with many buyers receiving 100% bonds”.
Levies – “Levies are one of the most overlooked costs when buying off-plan and they must be factored in with caution. Bear in mind that levies are only pinned down once the off-plan development is registered so the price given to you during purchase is merely an estimate. In an off-plan development, you are paying a lot for amenities purely because there are so many. Many come with gyms, pools, added security, club houses, schools etc”.
Grant advises that it may be best to investigate existing properties with fewer levies and amenities to get more ‘bang for your buck’.
“Compare off-plan and on-plan properties before investing. Take emotion and added amenities out of the equation – do the sums and the research. There are great deals going around on existing properties too so don’t rule this out.”
Tips for buying-off-plan
Research, research, research!
Price around to make sure that you are getting the best deal in your respective area.
Get in as early as possible to secure the best possible location.
Visit the site regularly.
Work closely with your agent and check-in regularly.
Ask for timelines and stay on top of these.
Get everything in writing.
Add a clause to your contract to protect yourself should there be delays or other issues that are out of your control.
Choose high-end finishes that will last (i.e. good locks, tiles, granite tops etc.).
Be rational and logical in making the final purchasing decision.
Factor in the cost of levies.
Beware of snags (hairline cracks, damp etc.) and make sure that these are done upon moving in.
“Visualise the property, do your research on the area and similar properties within the area and keep the property’s future resale value in mind. Think long-term” he concludes.
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