Thursday, April 18

Off-plan or existing: which type of home is right for your pocket?

Google+ Pinterest LinkedIn Tumblr +

There are pros and cons to consider, say property experts.

When buying a home, one of the first questions you need to ask is: do you want an existing property or do you want to build a new home? If you want to build, do you want to design your own house or will you buy off-plan? The answers will lead to significant differences in what you get, including price.

There are pros and cons to consider, say property experts. Price is one of the first things potential buyers look at. Most people assume existing homes are more affordable than new developments, says Tony Clarke, managing director of the Rawson Property Group, but this is not always true.

“Developments tend to be run more efficiently than private builds. Those cost savings can be passed on to buyers, particular if they buy early.” Buying off-plan can lead to excellent profit, says Clarke.

He knows of several investors who bought into developments early, and sold a few months later for significant profit. However, buying an existing home as a fixer-upper will give you more potential to add value.

“But adding value in this way tends to be a slower, more involved process.” The purchase price isn’t the only cost to consider. Existing properties attract transfer duty, while properties in new developments attract VAT.

“VAT is higher than transfer duty in almost all cases,” says Clarke, “but VAT is usually included in developments’ listing prices these days, unlike transfer duty on existing homes.” 

Then there is maintenance and guarantees. “Older houses tend to have higher maintenance needs, and there’s no protection against defects beyond the basic disclosure requirements of the Consumer Protection Act,” says Clarke.

New developments shouldn’t require major maintenance for several years, and typically come with guarantees. But ensure the developer and builder know what they’re doing. Financing is another area to bear in mind.

“One benefit of buying into a new development is that banks often pre-approve promising projects, making it easier for potential purchasers to qualify for finance. New developments also sometimes include VAT, bond and legal fees in the purchase price so you can get a bond that covers all your expenses, excluding your deposit. Transfer duty and legal fees on an existing house are never covered by the mortgage, which means you need a bigger cash investment upfront.”

Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa, says when you buy off-plan you usually have a say in what the final home will look like. But this flexibility is limited.

While each off-plan build will have its own set of customisable options, the rule of thumb is that buyers will have a choice of most fixtures and fittings, but structural changes can only be done pending approval from the developers, and are likely to result in additional costs. Buyers can expect options for cupboard door finishes and handles, kitchen counter-tops, flooring and paint colour.

“One option might come as standard and others will come at an additional charge,” says Goslett. “If you don’t like features on offer by the developers, you may usually propose your preferred option, but this will come at your own cost if approved.” Buyers should also beware of thinking they can make changes to a property in a development after they have bought.

“Off-plan properties are most often built in estates managed by homeowners associations with strict rules regulating the appearance of homes.”


About Author