Top tips on buying property off-plan

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11 Jun 2013

Buying property off-plan can be daunting, particularly if it’s something you’ve never done before. We’ve all heard stories of shoddy workmanship, people being left in the lurch by inexperienced developers who fail to project the overall figures correctly, or those unfortunate buyers who are faced with the liquidation of the developer before the project is completed.

Thoroughly research the reputation of the property developer. You need to be able to trust that they can deliver on their promises and that you won’t be left with a sub-standard home – or worse, an unfinished or non-existent property.

So what do you look out for when buying property off-plan in order to avoid pitfalls?

Brendan O’Brien, CEO of Urban Space, a Cape-based property developer specialising in the development of top-end security estates in prime locations which are predominately sold off-plan, has the following tips for would-be buyers:

  • Thoroughly research the reputation of the property developer. You need to be able to trust that they can deliver on their promises and that you won’t be left with a sub-standard home – or worse, an unfinished or non-existent property. Make sure that your developer has a good track record of delivering properties that have been sold off-plan. Talk to some of his previous buyers. If he is reluctant to put you in touch with them, that should be a warning bell for you.
     
  • Certain clichés are over-used for a reason – they are true. The old adage of “location, location, location” is one that should not be ignored when buying property off-plan. It is a much sounder investment to buy the cheapest property in the best location than the most expensive property in the worst location.
     
  • Before purchasing property off-plan, you should carry out an extensive due diligence on your potential new neighbourhood. I suggest that you largely ignore the asking prices of comparable properties – what you should rather look at is a list of comparable properties that have actually sold in the area. You can get such a list quite easily online through estate agents. It will provide you with invaluable information, like the rate per square metre for both the size of the actual property as well as the erf size. You can use this information to negotiate the price of the property you are looking to buy off-plan.
     
  • If you are building up a portfolio, buying property off-plan can put your cash flow under dangerous strain. In order to avoid this, borrow at a loan-to-value (LTV) ratio. (A LTV ratio is the fair market value of an asset in ratio to the value of the loan that will finance the purchase. This gives the lender an idea as to whether the potential losses due to non-payment can be recouped by selling the asset.)  
     
  • While a studied, numbers-based approach in deciding whether or not to make an investment in a new development is always important, you should never underestimate the value of your gut feel. Trust it.

O’Brien advises that, while buying off-plan can be an intimidating experience, there are certain benefits to it.

“When you buy off-plan, you have the freedom to personalise your home according to your tastes. You can tweak the design and layout of the property, as well as the finishes,” he says.

In addition, the value of a home invariably increases between the time you sign contract documents and the time the construction on your home is completed.

When it comes to selling property off-plan, O’Brien is something of an expert. One of Urban Space’s most recent developments, Adare Place in Upper Claremont, is a luxury security estate comprising of seven homes. Within a month of the launch of this development, six of the seven houses were sold off-plan at prices ranging from R12m to R24m. Construction of Adare Place is well under way and scheduled to be completed in March 2014.  

Buying off-plan may seem like a leap of faith, but if you do your homework, you may be rewarded with your dream home at a discount on the open market value.  

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