Buying off-plan

What do you need to watch out for?

You have made the decision to enter the real estate market and have opted to use the off-plan option to acquire the property. Off-plan buying means that you buy the property before the developer builds.

Before buying off-plan it is important that you do your research well. Make sure you know who the developers are and some of the work they have done. Are they creditworthy? You need to know this because they will be holding your money so if they go bust can the bank bail them out? Talk to people who have done business with them and get references if possible. Is the project insured in case the project does not get completed as per the agreed upon schedule?

You need to decide why you are buying the property, do you want to flip it, rent it or sell it once done. Where is the property located? Is it a viable area with good road network near schools and shops?

Before signing the sales agreement, make sure you have a proper understanding of the documents to guard yourself against any losses. Use a conveyance expert if you can afford to as they will be able to explain everything to you.

Pay close attention to timelines. If the developer is not keeping to the schedule then you should voice your concerns as delays could impact on your business or on your credit scores if you had financed the property with a loan hoping to perhaps use the income from the rentals to offset the loan.

One of the major disadvantages of off-plan buying is that you have no control over the completion date. Some projects may, due to unavoidable circumstances delay and could impact negatively upon the buyers.

Many lenders shy away from giving mortgage or loans to off-plan buyers and when they do, they only give a period of about 6 months, meaning that if the project does not go as projected time-wise then the lender may come calling even before you take ownership of the property.

Depending on the market fluctuations, buying off-plan could actually mean that property you have bought at a certain price may lose its projected value. You may actually end up actually getting less than what you had projected which is a terrible loss to an investor who is looking to get good returns on investment.

Make sure once the project starts you do site visits. Schedule weekly or fortnightly visits to ensure the developer are keeping to the schedule. The developers should have also given you the projected completion date and you can monitor whether they will be able to deliver as promised.

Final thoughts.

Buying off plan is a good way to enter the real estate market. You, however, need to ensure that you have a full understanding of the process and have taken time to research on the developers to make sure you do not sink your money into projects that will never materialize.