Buying property off-plan: Here’s what you need to know
There are many benefits to buying off-plan. There are also many risks. Here's what to look out for.
Investors looking for new avenues for investments in 2023 may consider buying property off-plan. It is a feasible option for aspiring homeowners too.
Naturally, there is always a bit of hesitation around whether one should buy a property that is still under construction, as one wonders if may just be safer to wait a bit.
Michael De Lucia, Chief Business Development Director for the De Lucia group that has been in the property industry for over 45 years, explained that buying an off-plan property means basing one’s purchasing decision on the developer’s “vision”.
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“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,” he explained.
“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%,” he added.
What will happen if the property prices fall after buying off-plan?
De Lucia advised that it was 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.
“Potential buyers may have to make an informed decision on which of these steps to take if the property price should fall.
Some of their options include keeping it until completion, selling it at current prices, or selling at a reduced price,” he said.
Are there Benefits to Buying Off-Plan Property?
De Lucia reckons that 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 neighbourhoods 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,” he said.
The group listed additional benefits as the following:
• The units are often constructed with the latest construction technology and building materials, which results in the increased longevity of the investment.
• 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.
But with the many benefits that come with buying property off-plan, are as many risks.
What are the risks to watch out for when buying off-plan?
A big risk is that investors could lose 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 just bad financial management by the developer.
Also, De Lucia warns that 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, until the construction has been completed,” he said.
It may also pose a problem to investors if the rental income from the property is critical to their cash flow.
“The market price could drop between the time from signing the contract and taking transfer of the property later. Even if this seems unlikely, it is risk factor that investors must take into consideration,” he said.
Another risk to consider is development obstacles, such as roads which have not been laid after the
registration of transfer. This can result in mortgage repayments being paid before the property can be
Do your homework
De Lucia concludes that smart investors definitely need to do thorough and extensive homework that covers all the risks.
“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.”
*Additional reporting by Devina Haripersad.