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Off-plan purchase can be profitable

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But agents warn there are reasons to be cautious

There’s always a risk associated with buying something that you can’t see and buying property off-plan means exactly that – you are buying your new home or investment property in a sectional title complex, luxury apartment or cluster home scheme before it has been built; before it exists.

This means that you will depend on the developer and builder to complete your home properly, within your desired construction design requirements and on time, says Jonathan Kohler, chief executive of the Sandton-based Landsdowne Property Group.

“There are many benefits to purchasing a house off-plan, including the fact there is no transfer duty, as you are buying the property directly from the developer.

“The largest benefit is that you are purchasing at today’s value, and need to start paying only once the development is completed, therefore getting capital appreciation on the property while it is being constructed.”

Another advantage, from a buy-to-let perspective, he says, is that tenants like to rent brand-new properties that have never been lived in before.

Furthermore, the owners can demand a slightly higher rental in this case.

“You need to be very careful that the developer you are purchasing from has a good track record. It is advisable to have a look at previously completed developments and make sure they were built well, on time and look like the architectural drawings and renderings promised in the glossy brochures.”

It is also important to make sure that, historically, the occupation and the transfer dates are more or less the same.

If this is not the case, you could be forced to take occupation on the agreed date and pay occupational rent to the developer until the apartment is transferred, Kohler adds.

Another caution is that buyers should beware of believing that the developer is reputable simply because a reputable estate agency is selling the development, as a good estate agency does not necessarily equal a good developer.

Furthermore, some developers require 80% to 90% of the development to be sold before the bank will release the first portion of the building finance.

“If you are purchasing a property on the precedent that you will get occupation when the developer says you will, and the development doesn’t sell well, it might never materialise.”

To ensure you are making a wise purchasing decision, Kohler offers the following questions you should ask your developers when planning to buy off-plan:

  • How many years have you been in business?
  • How many developments have you completed?
  • Could I have a list of your completed developments?
  • In your previous developments, did transfer and occupation generally occur at the same time?
  • Are your renderings a true reflection of what the development is going to look like?
  • Who is the managing agent who prepared the budget and levies for this development?
  • Do your levies include provision for maintenance or are there generally special levies imposed for major maintenance?
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