Off Plan – buying a property “off the plan” or drawing
board, before it has been built.
WHAT TO BUY OFF PLAN
growth and recession, off plan purchases aren’t nearly as commonplace. At its best, buying off plan benefi ts both the developer who is building the homes, and the purchasers who secure a discount by taking a leap of faith and buying something that doesn’t exist.
D By securing sales and therefore funds pre-
construction, the developer can afford to proceed with the build, and the buyer receives a price reduction as an inducement for paying a hefty deposit up front and then waiting 18-24 months for the property. This discount used to be up to 30 per cent, but margins have shrunk so much in new developments that it’s now typically much less. However there may be the advantage of cherry-picking the best units in a development and infl uencing the plans, whether in reconfi guring a layout, knocking two apartments together, or choosing the fl oor tiles and fi ttings to get exactly what you want. So how does it work? Prospective off-plan purchasers
pay a deposit followed by several stage payments at signifi cant points in the build process, for example when the foundations are laid and the roof goes on, then a fi nal payment on completion. Historically, the price of a unit goes up at each of these stages, as the risk for the developer decreases. Thus hefty profi ts were made in the boom years where investors bought off-plan and sold the property for a higher price even before it had been completed. This process – known as “fl ipping” – only works when prices are rising quickly, and when the market suddenly slows down, the risks are much higher as many people have found out to their cost. The fact is the number of buyers willing to risk buying off plan in the current market
uring the property boom several years ago, buying off plan made the fortunes of hundreds of property investors. In these times of slow
has reduced dramatically. In some areas there’s such a surplus of brand-new properties sitting empty that buyers are asking themselves why they should risk buying something off plan when ready-built properties are just as cheap? But the most important thing is to determine whether
the developer is able to deliver what he promises – and what guarantees you might have if he doesn’t. Following the onset of the recession, numerous
developers around the world went out of business or were unable to complete their projects, so you need to really look at their track record – have they delivered on projects on time recently? What is the quality of the build? Can you talk to those who’ve already invested? – owners’ online forums can be very useful for this. Your independent lawyer must complete due diligence on the developer and their project, which should include checking out plans for neighbouring sites too: will a new high-rise hotel block out your sea views? They must also ensure you get bank guarantees to
provide security over your deposit if the developer is unable to complete the project.
Off plan but not offguard Ë Do the benefits of buying off plan outweigh the risks for you?
Ë Can you be sure that the developer will be able to deliver the project?
Ë What guarantees are in place if the project is late – or stalls?
Ë Be aware that it’s the contract you sign that tells you what the developer is bound to deliver to you, not the contents of their brochure. If something is particularly important to you, make sure it’s in the contract.
Ë Due diligence by an independent lawyer is a MUST. AIPP CONSUMER GUIDE 15
SECTION 2 PLANNING YOUR PURCHASE
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