Buying off-plan is a cheaper way of investing in property, but there are a few drawbacks They say timing is everything, and when it comes to investing in new property developments, the early bird catches the worm.
Buying property off-plan means purchasing a house or apartment directly from a property developer before the development is built.
The biggest advantage of buying off-plan is the fact that there are no transfer duties as property tax is incorporated into the sale price in the form of VAT, so the price you are given will be the total you’re expected to pay.
“Buying a property priced at more than R750 000 means there’s considerable saving when it comes to upfront expenses because there is no transfer duty payable,” says BetterLife Home Loans CEO Shaun Rademeyer.
“There may be savings even for those buying lower-priced homes because developers will often cover bond registration costs and transfer legal fees as a purchase incentive.”
If you’re not buying the property as a rental investment, then buying off-plan also allows you the opportunity to customise the layout and finishes to your home.
Buying off-plan also gives buyers the opportunity to make a quick return on investment – provided the property is located in a high-demand area – by flipping the property or reselling it before construction is complete.
“The primary reason for purchasing a property off-plan is generally seamless. Investing in a property that is newly constructed means you’re likely to encounter fewer maintenance issues than when purchasing a resale home,” says Pam Golding Properties CEO Dr Andrew Golding.
While there are several attractive benefits to buying off-plan, there are also a few pitfalls to be aware of before making this decision.
If you don’t do adequate research into the developer or builder you could well find yourself invested in a dubious development.
Leapfrog Property Group MD Bruce Swain advises potential buyers to investigate the developer’s track record and reputation, and to confirm whether that they’re registered with either Master Builders South Africa or the National Home Builders Registration Council.
“Has the company successfully completed previous projects? Have they done so in a timely fashion? Is the developer and the builder the same person or company? If not, then look into the builder’s work as well,” he advises.
If your intention is to rent out the property then it’s a good idea to do some recon in terms of finding out the percentage split between buyers who are buying to live in the property and those who are purchasing for rental investment purposes.
“You don’t want to buy a home with the intention of selling it in a development where everyone is doing the same,” Golding says. “When a large percentage of the owners of other homes in the development intend to sell or rent their properties, the situation may become saturated and you will be forced to lower your asking price, potentially cutting into your profits.”