Undertaking due diligence when buying off plan is essential

Those who are looking to purchase a sectional title property off plan should make very sure that they know exactly what terms and conditions are attached to the sale. 

Most importantly those who are purchasing a sectional title unit off plan should ensure that the developer has all the required rights on the property in place. This is according to Chris Renecle, MD of Renprop, one of South Africa’s largest providers of sectional title properties.
Residential property development has picked up again post recession, and many buyers are interested in purchasing sectional title homes due to the number of benefits they offer. Aside from generally being more affordable than their freehold counterparts, when it comes to investing into an off plan sectional title unit, the purchaser signs an offer to purchase based on the current market value of the property, pays a relatively small deposit and then benefits from the capital growth on the property while the development is constructed and completed. This means that the new owner enjoys capital appreciation on the property before the first bond repayment is due.
However Renecle points out that many sectional title buyers who are acquiring off plan property are not aware that the developer needs to have the required zoning rights in place before they can submit their development plan to the council for approval,” says Renecle. “This process should be completed before the marketing of a development begins,” he says. “We believe it us unethical to launch a new development to the public without the necessary rights in place because it misleads consumers into thinking that the development is a sure thing, when in fact the rezoning application could well be rejected or require amendments which would certainly influence the pricing of the units among other factors.”
Renecle explains that the rezoning applications upon which the development rights are granted generally take around 12 months to go through the required process, and that is provided that there are no objections to the rezoning. “For buyers who have put down guarantees on a development where the rights are yet to be obtained, delays of two years or more can be expected,” he says.
Renecle also explains that banks will not grant finance for a property within a development that is yet to secure its rights. This is because the rezoning application may be rejected, in which case the development may not go ahead. “There have been some instances where investors have had their financial guarantees tied up for a number of years in a development which never got underway because it never had the rights in place and the rezoning application was declined. Aside from the fact that their money was tied up for an extended period, these investors lost out on other real estate opportunities while waiting for this development to materialise,” says Renecle.
In conclusion he advises any buyers of off plan sectional title developments to check all the details and conditions before signing an offer to purchase to save frustration and disappointment.

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