Weekend Argus (Saturday Edition)
The pros and cons associated with off-plan buying
THE BIGGEST advantage in buying off-plan is the financial leverage that buyers enjoy, says Dave William-Jones, chief executive at FWJK.
This leverage is achieved by putting down, for example, a 10% securing deposit on the purchase and then proceeding to enjoy the positive effect of annual property price increases.
“This is while still receiving credit interest on their deposit during the time it is deposited in the attorney’s trust account. This compounds the benefit of buying off-plan at current market prices, but taking delivery of an off-plan product at a future higher value.”
Pam Golding Properties’ Laurie Wener says: “There are so many advantages to innovation in design, technology and finishes offered in new products by developers, architects and interior designers, and the advancement of online marketing available, that off-plan buying has become irresistible to the forward thinking purchaser.”
Another benefit, says Rabie Property Group’s John Chapman, is that buyers have first choice and select a unit which suits their needs.
Wener says prices are VAT inclusive and the value of the development is likely to have been pre-approved by the major banks. Plus there is no transfer duty payable and only the buyer requires qualification for the mortgage loan.
Bill Rawson of Rawson developers lists the following pros:
◆ You are buying a new property with a guarantee for construction and finishes.
◆ The prestige of owning your new home or investment. There are, of course, downsides too, Wener
cautions: “Buying a non-existing product has to carry risks such as the level experience and competence of the developer, the quality of the design and construction, delays in completion and the time between taking occupation and transfer, during which the buyer will have to pay occupational rental.”
Chapman says that when buyers do not deal with reputable developers, they can end up with “a completely different or lesser quality product to what they believed they were investing in”.
Another negative, he says, is that if a scheme is not fully committed, the developer is unable to get finance, resulting in a cancellation of the development.
Finding a tenant at the right price can also be a challenge, says Rawson.
“Often, when you take occupation your unit may be competing with many others for tenants. This sometimes leads to a price war in the first year that tends to settle when leases are renewed or properties re-let in the second year.”
Additional downsides are:
◆ High (sectional title) levy until the maintenance fund has sufficient reserves to maintain the building.
◆ The expectation that the unit should be larger. Often marketing brochures show a furnished apartment which does look larger.