Is buying off-plan worth it in SA? Pros, cons & hidden costs

There is no universal winner when choosing between an off-plan development and an existing home. One offers a new property, potentially lower upfront transaction costs and the possibility of value growth before completion. The other gives the buyers something tangible that can be inspected, valued and occupied within a more predictable timeframe. The better choice depends on the buyer’s finances, timeline and appetite for risk.

“Off-plan and existing properties solve different problems,” says Antonie Goosen, principal and founder of Meridian Realty. “The buyer should not ask which category is better in general. They should ask which one better suits their current needs and financial position.”

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• A major attraction of buying off-plan is that the property is new. Buyers may be able to select finishes, colours or certain upgrades, and maintenance cost may initially be lower than those of an older home. New developments may also offer modern security, fibre connectivity, energy-efficient features and layouts designed for contemporary lifestyles.
• When the developer is VAT-registered and the transaction is subject to VAT, the VAT is normally included in the advertised purchase price and the buyer does not also pay transfer duty. Some developers also include the transfer attorney’s fees in the purchase package, although buyers must check the agreement rather than rely on “no transfer costs” marketing. Bond registration and bank-related charges may still be payable.
• An early purchaser may also benefit if property values rise between the launch of the development and completion. However, capital growth is never guaranteed, and buyers should be cautious about paying a speculative premium based solely on projected future demand.
• The central disadvantage is that the buyer cannot inspect the completed home before committing. Decisions may be based on plans, specifications, artist impressions, sample units and marketing material. Room sizes, views, natural light, finishes and the surrounding environment may feel different once construction is complete.

A little research goes a long way

Chris Cilliers, CEO of Lew Geffen Sotheby’s International Realty in the Stellenbosch says, “As with most things in life, the only way to make the right decision is to make an informed one, so a little research will go a long way to help you understand which option is the right one for you right now."

“The biggest advantages of buying an existing home are that the neighbourhood is usually established so there is little risk of having the disruption of ongoing construction and these areas will also have a developed infrastructure and an array of amenities like shopping centres, schools and sports facilities in close proximity." 

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Goosen notes that there is a significant difference between buying a home you can walk through and buying a contractual promise of what will eventually be built. The quality of the developer, the documentation and the buyer’s due diligence therefore become critical: 

• Construction delays are another risk. Buyers should examine the expected completion date, extension provisions, occupation arrangements, penalties, refund rights and what happens if the development does not proceed. They should also consider whether their financial position or interest rates could change before transfer. A bond approval obtained early in the process may need to be reassessed closer to registration.
• Before buying, purchasers should confirm that the builder is registered with the National Home Builders Registration Council (NHBRC) and that the home will be enrolled. The NHBRC requires people in the business of home building to be registered and provides defined inspection and warranty protection for enrolled homes.
  
  

• New homes have NHBRC guarantee

  Cilliers adds that another compelling benefit of buying new from a developer is that these homes come with a National Home Builders Registration Council (NHBRC) five-year guarantee, with the roof guaranteed for one year.

  “Buyers also have a stipulated period after moving into the property during which time any snags will be made good by the developer.  And if you buy from a developer the Consumer Protection Act (CPA) will safeguard you, whereas if you buy from a private seller the CPA doesn’t apply.”
  
  

• The buyer should investigate the developer’s previous projects, financial standing and delivery record. The agreement should clearly identify the unit, parking, storage, specifications, finishes, estimated levies, exclusive-use areas and any changes to the developer may be permitted to make In a sectional-title development, buyers should study the proposed conduct rules, management arrangements and likely body corporate budget.
• An existing property offers greater certainty. The buyer can inspect the actual building, street, views, garden and neighbouring properties. The area’s traffic, noise and amenities are already established, and comparable sales may make value easier to assess. Transfer can also happen more quickly than waiting for construction.
• Existing properties may offer more room for price negotiation, particularly where a seller has already purchased elsewhere or the home requires updating. Established suburbs can provide larger plots, mature gardens and access to schools or facilities that may be difficult to replicate in newer developments.
• The disadvantages include transfer duty above the applicable threshold, older infrastructure and a higher likelihood of repairs. Buyers should  consider obtaining an independent inspection, study the mandatory disclosure form, confirm approved building plans and review all applicable compliance certificates.

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For sectional-title properties, the body corporate’s financial statements, budget, levy history, insurance, maintenance plan, meeting minutes and special levies are important considerations. A beautifully renovated unit can still be a poor purchase if the scheme has weak finances or major repairs approaching.

“Off-plan suits a buyer who can wait, trusts the development team and has carefully reviewed the contractual risks,” Goosen says. “An existing home may suit someone who needs certainty, immediate occupation or the ability to assess exactly what they are buying.”

The decision should ultimately be based on total cost rather than the headline price. Buyers must compare taxes and legal fees, likely levies, upgrades, maintenance, occupation timing and financing risk. “New does not automatically mean better, and existing does not necessarily mean safer,” Goosen concludes. “A good purchase is one where the property, price, documentation and buyer’s circumstances all align. Whether the home exists today or is still on a plan, disciplined due diligence remains the buyer’s strongest protection.” 

READ: Buying property off-plan? Vital questions to ask the developer

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