Monday, May 20

The pros and cons associated with off-plan buying

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"Off-plan buying has become irresistible to the forward-thinking purchaser."

The biggest advantage in buying off-plan is the financial leverage that buyers enjoy, says Dave William-Jones, chief executive at FWJK.

This leverage is achieved by putting down, for example, a 10% securing deposit on the purchase and then proceeding to enjoy the positive effect of annual property price increases.

“This is while still receiving credit interest on their deposit during the time it is deposited in the attorney’s trust account. This compounds the benefit of buying off-plan at current market prices, but taking delivery of an off-plan product at a future higher value.”

Pam Golding Properties’ Laurie Wener says: “There are so many advantages to innovation in design, technology and finishes offered in new products by developers, architects and interior designers, and the advancement of online marketing available, that off-plan buying has become irresistible to the forward-thinking purchaser.”

Another benefit, says Rabie Property Group’s John Chapman, is that buyers have the first choice and select a unit which suits their needs. Wener says prices are VAT inclusive and the value of the development is likely to have been pre-approved by the major banks.

Plus there is no transfer duty payable and only the buyer requires qualification for the mortgage loan.

Bill Rawson of Rawson developers lists the following pros:

  • You are buying a new property with a guarantee for construction and finishes.
  • The prestige of owning your new home or investment.

There are, of course, downsides too, Wener cautions: “Buying a non-existing product has to carry risks such as the level experience and competence of the developer, the quality of the design and construction, delays in completion and the time between taking occupation and transfer, during which the buyer will have to pay occupational rental.”

Chapman says that when buyers do not deal with reputable developers, they can end up with “a completely different or lesser quality product to what they believed they were investing in”

Another negative, he says, is that if a scheme is not fully committed, the developer is unable to get finance, resulting in a cancellation of the development. Finding a tenant at the right price can also be a challenge, says Rawson.

“Often, when you take occupation your unit may be competing with many others for tenants. This sometimes leads to a price war in the first year that tends to settle when leases are renewed or properties re-let in the second year.”

Additional downsides are: 

  • High (sectional title) levy until the maintenance fund has sufficient reserves to maintain the building
  • The expectation that the unit should be larger. Often marketing brochures show a furnished apartment which does look larger.

Customising the options

CHOICE FITS Most changes to standard options in new developments will incur additional costs. Picture: Supplied

While there are many enticing factors when purchasing a property off-plan, such as having a say about what the final product looks like, buyers must remain realistic about how much they can change.

This is because most changes will incur additional costs, warns Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa.

While each off-plan build will have its own set of customizable options, he says 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.

For most off-plan builds, homeowners can expect choices for cupboard door finishes and handles, kitchen countertops, flooring options and paint colour. “If you don’t like any of the features on offer, you may usually propose your preferred option at your own cost.” 

Developers take the gap

GOING UP Westbrook is a new off-plan development in Port Elizabeth. Picture:
Amdec Property Group

In 2018, about 12% of properties sold in Port Elizabeth were off-plan, says Re/Max agent Christo Slabbert. Of all new developments, about 50% are launched off-plan while the rest are turnkey developments.

“There is a big shortage of second homes available for sale in Port Elizabeth up to R1.5 million, and the developers saw that gap in the market.” Therefore, more buyers are purchasing in new developments, Slabbert says.

“The buyers prefer to buy into developments where they can view the built home and where they don’t have to pay interest on the bond before the home is registered in their name.”

First-time buyers, in particular, prefer to buy into new developments because there are no transfer fees payable and the developers are also targeting buyers who want to downscale to live in lock-up-and-go units where security is good and where there is less maintenance.

“Most of the developments are designed for first-time buyers and buyers who want to scale down.”

Off-plan is off-putting

BIG BUY Properties are available for purchase off-plan in Melrose Arch. Picture: Amdec Property Group

In the Joburg market, home to Amdec Property Group’s Melrose Arch, a mixed-use development where properties are available for purchase off-plan, Peet Strauss from Pam Golding Properties says off-plan buying “can still be as high as 50%”. However, this sector has been under pressure and trends show that off-plan buyers tend to buy to live.

There is also increasing pressure on developers to start construction sooner due to slow off-plan sales, he says.

“The longtime between purchase and occupation brings a much larger dropoff or failure of the purchase at the end of the process. Another factor in the slow process is the pre-construction escalation.” Slabbert says the Joburg market is seeing “a marked decline in off-plan buying”. 

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