Buying off-the-plan house and land packages involves signing a contract to purchase property that is yet to be built. Since there is no actual property to check or inspect, off-the-plan buyers depend on the developer’s plans and artistic renderings of different home designs that show how the finished property would look.
This approach carries both benefits and risks, so keep the following in mind before you commit to buying off-the-plan house and land property.
Off-the-plan house and land packages – benefits and risks
Some property buyers prefer to take the off-the-plan route as it offers the following advantages:
- You may end up paying less for a potentially more valuable property. The purchase price you agree upon with the developer may be a lot lower than the actual value of the property once it is finished as real estate prices tend to increase with time.
- You can save a lot on stamp duty since these properties are usually granted bigger discounts. Also, with off-the-plan units, the stamp duty would only apply to the land value.
- You can maximise tax deductions from depreciation if you plan to lease out your property.
- You have the potential to own a nearly flawless, energy efficient home. New building codes and related regulations usually require new houses and buildings to follow green building practices.
- You only need to put down a small deposit (usually 10 percent) initially. This buys you time to get your finances in order so you can pay up when the time comes.
When you invest in any property off-the-plan, whether it’s single detached house and land packages, duplex homes or apartments, you’re also putting your faith in the developer’s ability to stick to their side of the bargain.
However, aside from the risk of having to depend on the developer to get the property built, there are other risks to consider. These include the following:
- If construction is completed while the market is down, the off-the-plan property value may have also depreciated. Speculators looking to make a quick sale upon project completion can easily lose out in this scenario where supply outnumbers demand. However, this does not apply if you can wait it out before reselling or if you will be living in your property.
- The project may not be delivered at all if the developer goes bankrupt. To avoid this scenario, it’s essential to conduct due diligence before you even attempt to find off-the-plan properties on the market. Read up on current market conditions and review data on market performance in the last five, ten years. Research about your prospective developers. Check their track records in terms of project delivery, building quality, finance and even any media reports concerning them. Personally visit their past projects, and get insights from previous buyers.
- The sunset clause in the sale agreement or contract may expire prior to project completion. The implication of this is that once it is ascertained project delivery won’t take place by the date mentioned in the contract, the agreement is considered null and void. You’ll get your deposit back and that’s basically it. Although the sunset clause is meant to protect buyers from constant project delays, unscrupulous developers can also use it to terminate their contracts. This can happen when there is a high demand for the property and the developer wants to resell at a higher price. Again, this all boils down to you conducting due diligence, especially regarding your prospective developers.
Be sure to find out about the builders selected for the project. You need to ensure that they are specialists in their field. For example, if you’ll be investing in off-the-plan duplex property, it’s important for the building partner to have an excellent track record in duplex building, so you’re assured of the final quality. This way, you can maximise your block of land and your investment.
Steps to take when buying off-the-plan
Now that you’re aware of the benefits and risks concerning off-the-plan property, you can take the following steps to secure your own.
- Choose the block where you want to buy a house and land package.
- Select the plan or home design option that you want. This is also the time when you can discuss any upgrades or changes which can affect pricing.
- Receive a detailed estimate of the additional costs (based on the upgrades) and the quote.
- Get pre-approval from your bank or arrange financing and then set your budget.
- Pay the required deposit and any other related fees to secure the home price and your block of land.
- Meet with the developer’s designers to finalise your selection of finishes, fixtures, colours and electrical requirements. Any additional items would be included in the final building contract.
- Sign your contract with the developer. Be sure to read the fine print before signing on the dotted line.
After this, you can check for work progress from time to time. Some developers also publish construction updates on their websites so that buyers are aware of how building work is going.