Financial institutions want debts repaid, so lower risks mean fewer chances of defaulting
Capital growth and the idea of being the first people to live in a property – not to mention possibly having the home designed to your specifications – is making off-plan buying increasingly popular.
Unfortunately, the chances of going this route are limited as buyers can purchase off-plan only when such developments reach the market. The total market composition of off-plan buying is therefore impossible to gauge and may also vary greatly from suburb to suburb, says Laurie Wener, Pam Golding Properties’ senior executive for developments in the Cape region.
Furthermore, this suburb variance is often not due to demand but the availability of developments in an area. John Chapman, a director at the Rabie Property Group, says the “vast majority” of new developments in Cape Town is off-plan due to reduced risk for the developer and the increasing demand for pre-sales by the financial institutions lending finance.
Off-plan schemes are also “very useful” to determine interest in the market, he says. “Off-plan buying and selling have increased rapidly in demand due to the stricter policies imposed by financial institutions. The banks obviously want their debt repaid and the more risks eliminated at the outset, the fewer chances of default.”
The market, particularly investors, has always reacted positively to such opportunities, Chapman says. “Purchasers have the opportunity to view what they are investing in and through modern tools like CGI models, they get a great idea of what the final product will look like.”
Despite this, Wener says, overall, off-plan buyers are in the minority in the Cape as most residential suburbs are generally well-established and development opportunity is limited.
“Also residential purchasers usually need a place in which to live within a short time and most are not in a position to wait for completion of an off-plan sale.”
This does not, however, mean demand for off-plan properties is not there. “The popularity of buying off-plan has increased exponentially over the past 20 years. Capital growth frequently yields a profit between date of purchase and the date of taking ownership,” Wener says.
“Buying off-plan is preferred by the investor, the speculator, young professionals, part-time residents, experienced property traders and prospective residents who want to a choose prime position and for whom buying now and paying later is ideal.”
Bill Rawson, chairperson of Rawson Developers, says while off-plan buying is estimated to constitute only 5% of about 2 000 properties sold on average each month, it has “certainly” occurred more in the past few years.
“The primary reason is a dire shortage of houses/flats to rent as Cape Town has received unprecedented demand. “What is interesting to note is that Absa has advised it is prepared to finance its clients with 100% mortgage bond facility when buying off-plan into new developments. This is encouraging and it is currently making them an aggressive market leader in this space.”
As most developments require a certain number of sales before breaking ground, this will help developers get development finance to start building.
Make sure you know what you’ll get when buying in advance
Placing your trust in a developer to deliver the home of your dreams, when all you’ve seen are artists’ impressions, requires a leap of faith.
However, there are many benefits to buying off-plan, particularly from a developer with an established track record, says Clifford Oosthuizen of Westbrook Property Developments.
Buyers are urged to research the developer as their track record will give you an indication of the quality of their work, the reliability of their contractors, and the returns they deliver to investors and buyers.
Oosthuizen also advises:
- Ask the developer for proof of membership with organisations, including the National Home Builders Registration Council, which ensures the registered builder will guarantee his work.
- Ask to be kept updated about changes and/or visit the site often as the property or development might end up looking slightly different from the artists’ impression.
Rawson Developers’ Bill Rawson suggests:
- Make sure you understand exactly what the offering is so you are not disappointed. Consult your legal adviser if you don’t understand the agreement or have doubts.
- Risks can be substantially mitigated by establishing who the developer and architects are, the attorneys attending to the legal work, and what other projects have been done by the developer, says Pam Golding Properties’ Laurie Wener.
“Establish which construction company has been appointed or is being considered. Find out if plans are approved and when they are likely to be passed.
Familiarise yourself with the schedule of fixtures and fittings provided and choices. Read the documentation carefully and ask questions.”
She says there is inevitably a period of time between completion of a building and registration of transfer into the buyers’ name, so she advises buyers to ensure occupational rental equates to a bank interest rate on the purchase price of the property.
“Doing this will ensure that during this hiatus you will still earn interest on your invested capital and/or save mortgage loan repayments.”
Re/Max agent Christo Slabbert says: “Buyers must ensure they understand the plan they sign for and they must understand what the price includes and excludes.”