What is an Off-Plan development?
In recent times we have been inundated with newspaper adverts, bill-boards, sponsored ads across social media, radio jingles talking about off-plan sales of developments both locally and internationally and the benefits of investing in off-plan developments. So what exactly is an off-plan development?
An off-plan development is a development that is being sold before it has been fully constructed or completed. Most times, all there is to the development are its renderings, pre-construction developments documents, and property plans which have been generated by the architect. A visually appealing story is then created around the development along with its offerings and facilities and then marketed to property investors, property speculators and buyers by the real estate developers and/or marketing firms. Early adopters who purchase properties in this way do so with the hope of making substantial capital gains. This is possible because most developers offer off plan properties at special discounts.
The demand for off-plan properties from developers continues to remain strong due to the fact that one can purchase a property at the current market price and enjoy capital appreciation in a strong market when the development is completed or after a few years. People are becoming increasingly aware of the gains of property investments and are taking a dive towards it especially with the “off-plan” concept. There is also an added value of having flexible payment options in the course of construction period. With so many new developments on offer now and in the years to come, this question pops up, “is purchasing an off-plan property a good idea?”
Buying off-plan in a market where prices are depreciating can put your investment at a greater risk. However, buying a property off-plan and getting it right can be extremely rewarding. The idea of parting with hard-earned money when construction is yet to begin is quite difficult to convey to prospective investors therefore there is need for a substantial amount of bravery and trust to be in place. Before buying off-plan, there are several processes that should be observed.
• Engage in thorough research
It is important as with any property purchase to find out the most essential information before making the decision to buy for instance, who is the developer? What is his reputation? Where is the location? Is it secure? Is it close to basic amenities? What is the rental value for such a development in that area? What are local property prices in the market? Get an information pack/ brochure of the property; get all the relevant off-plan details and go for an inspection if possible or take a good look at the models. Ask all the questions, as you do not want to be left in a vulnerable position in the nearest future.
• Engage the services of a professional real estate firm
When acquiring properties especially in off-plan developments, be sure to engage the services of a professional real estate firm. This would help minimize the risk of bad investment as they would help you in making the best decisions.
• Ask questions
Ask relevant questions to determine what is covered as part of the purchase price, for example, what fittings, floor coverings, painting and decorating is part of the package and what is additional.
• Obtain guarantees of the developer’s financial status written into the contract if possible, to avoid encountering financial complications with the developer
Ask to see the developer’s balance sheet to determine their financial strength as there is the risk that if the developer goes into liquidation before the property is finished you may lose your deposit and other costs.
• Make certain to arrange the appropriate finance for the property purchase well in advance.
• Discuss your expectations for the property with your developer and have them written into the contract to avoid disagreement with the developer at the completion of the project.
• It is important for the buyer to arrange for a surveyor’s valuation of the property. The financial company lending the buyer will require the surveyor’s report after an offer has been made.
• The earlier you get access to the property for sale, the greater your chances of securing the bests units on offer. Make a reservation for your chosen property and pay the reservation price (if necessary) having discussed with the developer the available options, pricing, contract agreement etc. You may also be given the option of re-modifying your house, make changes to finishes and fixtures etc. since it is off-plan.
• Next step is to exchange legal contracts. Carefully review the contract with a legal professional and take note of the completion date and penalties that would be obtainable if the developer exceeds the completion date and if you withdraw from the contract. This is very critical especially in this part of the world where there are no policies protecting investors. In Dubai for example, plans are being made to release the Dubai Investor Protection law which allows a full refund of paid amount to investors if the developer fails to complete or handover a property within a certain timeframe from date specified in the sales contract, deliberately defrauds an investor or alters the specifications of the unit without obtaining requisite permission. Laws like this protect the investors and ensure that both parties (developer and investor) benefit mutually from the development.
• Pay the initial deposit (make sure that a legal professional or real estate advisor is present for guidance and to minimize your risks). Other payments follow subsequently as agreed in the contract.
• Conduct a survey (also called snagging) some weeks before final completion. Check the property for defects just to be sure everything is working as planned.
• Final stage is completion and handover of unit to buyer by developer.
(To be continued in next blog post)