Re­al­ity can bite hard when buy­ing your home off plan

Business Day - Home Front - - HOMEFRONT - Taryn Har­ris

The con­cept is a great one but pro­tect your­self from the pit­falls

THE idea of buy­ing prop­erty off plan is sen­sa­tional, since the po­ten­tial to have in­put into the in­ter­nal lay­out and fin­ish­ing of your dream home is ex­cit­ing. Be­ing able to custom de­sign your own prop­erty without hav­ing to pay for an ar­chi­tect is def­i­nitely an ad­van­tage. That’s the good part. The bad part is that there are many down­sides to procur­ing prop­erty based on an ar­chi­tect’s plans.

One of the most ob­vi­ous is that pur­chasers can­not in­spect what they are buy­ing. Peo­ple sel­dom buy a car without hav­ing in­spected it or taken it for a test drive; yet many buy prop­erty off plan without hav­ing seen more than a pic­ture or ar­chi­tect’s plan.

An artist’s im­pres­sion of what a de­vel­op­ment is meant to look like is not nec­es­sar­ily what a pur­chaser agrees to in the draft build­ing plans and spec­i­fi­ca­tions. As buy­ing prop­erty is one of the most ex­pen­sive pur­chases in­di­vid­u­als make dur­ing their life­time, in­vest­ing cap­i­tal into some­thing that has never been seen is highly risky.

A less ob­vi­ous, but ex­tremely im­por­tant down­side is the falsely per­ceived cost sav­ings. The “pack­age deal” that many pur­chasers be­lieve they are re­ceiv­ing is not re­ally sav­ing the pur­chaser any money. It is not un­com­mon to see slapped on de­vel­op­ment bill­boards “no trans­fer duty”, “no trans­fer costs” and “no bond costs”. What most pur­chasers don’t know is that th­ese costs are as­sim­i­lated into the pur­chase price. Where the seller of a prop­erty is a VAT ven­dor and the prop­erty is part of a VAT-able en­ter­prise, no trans­fer duty will ever be payable by a pur­chaser. In­stead, VAT is payable by the seller. In the case of a de­vel­op­ment where the de­vel­oper is a com­pany and a VAT ven­dor, the seller will al­ways be li­able for VAT. This cost is built into the prop­erty’s pur­chase price, along with all other costs, such as bond and trans­fer costs.

The prob­lem with the ad­ver­tised “pack­age deal” is that the prop­erty’s value is less than what a po­ten­tial pur­chaser may be­lieve. Be well aware that the real value of the prop­erty is the net cost — the to­tal cost of the prop­erty less the trans­fer and bond costs and the VAT as­so­ci­ated with those costs.

A fur­ther po­ten­tial prob­lem is the fi­nan­cial stand­ing of the de­vel­oper. It is vi­tal that prior to sign­ing any sale agree­ment, a po­ten­tial pur­chaser in­ves­ti­gates the de­vel­oper. It is not un­heard of for a de­vel­oper to run out of funds part way through a de­vel­op­ment. This, in turn, can cre­ate var­i­ous prob­lems for a pur­chaser whose land has not been de­vel­oped to com­ple­tion. If, for ex­am­ple, the de­vel­oper runs out of funds, the de­vel­op­ment will halt, re­sult­ing in long de­lays. The longer the de­lay, the more chance there is for the over­all costs to es­ca­late. Th­ese, in turn, can be trans­ferred to the pur­chaser un­less a wa­ter­tight agree­ment, tai­lored to iden­tify th­ese prob­lems, is drafted.

The process is fur­ther de­layed if the pur­chaser is pur­chas­ing a unit in a sec­tional ti­tle de­vel­op­ment. Nor­mally, trans­fer of a sec­tional ti­tle unit will only take place when the fi­nal phase of that par­tic­u­lar build­ing has been com­pleted.

When buy­ing off plan it is im­per­a­tive that a pur­chaser is fa­mil­iar with the process.

Should a pur­chaser re­quire a bank to as­sist with the fi­nance, it is im­por­tant to re­alise that the re­pay­ment of (or at least part of) the mort­gage bond and the rates and taxes (which are higher on va­cant land than on de­vel­oped land) will be payable upon the un­de­vel­oped land be­ing trans­ferred to the pur­chaser. This means that a pur­chaser will have bond re­pay­ments be­fore the construction of the house has even com­menced.

Ac­cord­ingly, there is noth­ing to pro­tect the pur­chaser if there are de­lays in the de­vel­op­ment. If the de­vel­op­ment has not been built to spec­i­fi­ca­tion of the ap­proved plans, no oc­cu­pa­tion cer­tifi­cate will be given by the lo­cal au­thor­ity. Un­til such time that the house has been re­paired or, in ex­treme cases, plans are amended and re-ap­proved by the lo­cal au­thor­ity and at­tended to by the de­vel­oper, the pur­chaser should not oc­cupy the prop­erty.

Ul­ti­mately, most of th­ese prob­lems arise ei­ther be­cause the pur­chaser is un­fa­mil­iar with the process of buy­ing off plan or be­cause in­suf­fi­cient re­search was con­ducted into the de­vel­oper and de­vel­op­ment. Once the pur­chaser has at­tended to the above, it is vi­tal that var­i­ous pro­tec­tions are in place in the sale agree­ment to pro­tect the buyer in the event of long de­lays or a breach by the seller and/or de­vel­oper.

Al­though there are nu­mer­ous prob­lems (only some of which are men­tioned above) as­so­ci­ated with buy­ing off plan, there are many great de­vel­op­ers and suc­cess­ful de­vel­op­ments. If a pur­chaser has done his home­work and the right pro­tec­tions are in place, they are likely to avoid most of the dif­fi­cul­ties and take plea­sure in hav­ing a custom-de­signed home.

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