The risks and rewards of buying off plan

The idea of being able to buy a brand-new, never-been-lived-in home can be very appealing, but building from scratch can be an expensive and stressful commitment.

According to Tony Clarke, managing director of the Rawson Property Group, buying off plan can be the perfect compromise.

Buying off plan is a great option for people who want something new, fresh and customisable, but are intimidated by the thought of building and don’t have the budget, time or experience to do major renovations on an existing home,” says Clarke.

“It can also be a great investment, under the right circumstances. Plenty of developments appreciate in value significantly over the building period, raising the price of units two or three times before completion. If you buy early on, you can often make a significant profit selling just a year or two later, once the development is complete and showing at its best.”

Financing can also be easier to come by when buying into a development, especially when that development has been approved by one or more banks.

“You generally only need a small deposit to secure your purchase,” says Clarke, “and in the case of sectional title developments, transfer only takes place once the building of your section is complete, which means you’ll have months to save up before you need to start paying off your bond.”

New developments are also typically transfer-duty-free, although Clarke admits that this is not always the dramatic saving it may appear.

“You don’t pay transfer duty,” he says, “but you do pay VAT – and that can give the impression of buying a more valuable property than you really are. Although the purchase price may be R1 million, the property’s real value will be the purchase price minus VAT – R877 192,98. It’s not that the property is more expensive than it should be, it’s just that the additional costs are not as clearly separated as when you buy an existing house.”

This is just one of the many reasons Clarke recommends doing some very thorough research before buying into a development, not only to educate yourself on the process, but to get an idea of the neighbourhood and the value of similar properties that have sold nearby.

In addition, Clarke warns that not all developments are equal, and stresses the importance of investigating the developer’s track record, financial standing, workmanship and reliability.

“Net yield or return is also a good indicator for potential investors who want a good rental and I would recommend contacting your local rental agent for information about market related rentals in the areas of your choice.

“When you’re basing a purchase decision on nothing more than a set of architectural plans and artist’s impressions, it’s very important to be able to trust that your developer is capable – and willing – to deliver on his promises,” says Clarke.

“Double check things like specifications of finishes to make sure you know exactly what you’re getting, always have a professional look over your contract to make sure that your interests are being protected and make sure you know your facts about the guarantees provided by your developer and the NHBRC.”

With good developers, Clarke believes buying off plan is no more risky than any other property purchase – perhaps less so if quality guarantees are in place.

“If you’re willing to take the leap of faith required to buy something that does not yet exist, and have done the necessary research into the developer and neighbourhood you’ll be buying into, you stand a good chance of finding yourself with a rapidly appreciating asset for a minimal investment.”

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