Is buying off-plan a good way to invest in property?
A frequently asked question when it comes to buying a property that is under construction or off-plan, is should you buy, or should you wait?
Many people are hesitant to invest their hard-earned money in a property they have not even seen.
Naturally, you want to make sure you are making the right decision before investing your money in real estate or taking out a loan on a property.
Here are a few useful questions to ask before deciding on signing up for an off-plan property, so that you can get the best off-plan property at the best price.
1. What Is Buying Off-Plan Property?
Firstly, to clarify, buying an off-plan property, means buying a property before it has been built, and basing your purchasing decision on the developer's 'vision'.
Off-Plan properties are bought on the agreement that they will be completed in the future, usually between one to five years and can be bought for prices below the market value because their value is expected to increase once they are completed.
This makes off-plan property often more affordable and provides the buyer with a great opportunity to buy at a bargain rate and wait for the property to appreciate once construction is completed. Therefore, you will be buying the property at today's property prices, but by the time you take a transfer and start to repay the bond, the property value could have increased by as much as 20% to 35%.
2. What if the Off-Plan Properties Price Falls?
It is important to consider what will happen if the property prices fall after buying off-plan.
The price of the property is determined at the time of purchase, and there are no guarantees that the price will not fall in the future.
When buying off-plan, you should consult with a trusted real estate consultant. They will provide helpful advice about what steps to take if property prices fall after buying off-plan.
By consulting with a trusted real estate consultant, potential buyers will make an informed decision on which of these steps to take if the property price should fall:
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keep it until completion,
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sell it at current prices,
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or sell at a reduced price.
3. Are there Benefits to Buying Off-Plan Property?
Buying off-plan properties is a great way to get into the property investment market at an affordable price.
These off-plan properties are often located in upcoming neighborhoods with excellent infrastructure facilities and units in new developments are often constructed in line with the latest design trends, which means the buyer will have a modern and appealing unit to present to the rental market.
Additional benefits of investing in off-plan properties are:
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The units are often constructed with the latest construction technology and building materials, which results in the increased longevity of the investment.
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There are no crucial repairs and extensive maintenance to be done for at least three to four years since the building and its fixtures and fittings are brand new.
4. What are the risks to watch out for when buying off-plan?
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A big risk is Investors losing their deposits if the development does not proceed, for example, the local authorities not granting the necessary approvals, or a public electricity utility not being able to provide power, or bad financial management by the developer.
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The construction of the property may take longer to finish than was initially planned by the developer. This could pose a major obstacle for homeowners, who may have to find another alternative accommodation to live in until the construction has been completed.
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It may also pose a problem to investors if the rental income from the property is critical to their cash flow.
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The market price could drop between the time of signing the contract and taking the transfer of the property later. Even if this seems unlikely, it is a risk factor that investors must take into consideration.
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Many people are unable to envision the completed unit from the artists' impressions and architectural plans. This is one of the major pitfalls of buying off-plan, and many buyers have been disappointed with the final property.
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The final property may look different from those presented in the original plans, for several reasons. This can be because of the unavailability of materials, or necessary engineering or architectural changes that needed to be made during construction.
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There is a risk that the final property can be impractical, unappealing, and unsightly, making it difficult to rent out, and far more difficult to sell.
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Another risk to consider is development obstacles, such as roads that have not been laid after the registration of the transfer. This can result in mortgage repayments being paid before the property can be occupied.
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There are usually penalties applicable if a buyer wants to exit from the Off-plan contract for whatever reason. Developers are usually not obliged to permit buyers to exit from their contract too soon after purchasing it.
Taking the above into consideration, smart investors need to do thorough and extensive homework that covers all the risks.
If you need assistance with how to buy off-plan property, then feel free to contact us. Let us hold your hand through the off-plan property process!
De Lucia Group has been servicing the property industry for over 45 years. Contact us to ensure you get the best advice for all your property-related queries. Michael De Lucia - michaeldl@delucia.co.za.
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The information contained herein is not intended to constitute advice and shall only be relied upon by you at your own risk. De Lucia Group does not guarantee the accuracy or completeness of any information posted in this newsletter or otherwise. Any information relied upon by you should be independently verified for accuracy. De Lucia Group reserves the right to change the content distributed or published without prior notice.
09 Dec 2022
Author De Lucia Group