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Buyers can often get attractive deals by having the vision and foresight to buy into property developments while they are still in the planning stage. But there are risks.
Selling off-plan is common for new apartment buildings, terraced housing complexes and new subdivisions. There is a huge cash flow benefit to developers if they can sell some (or all) of their dwellings before they build them, i.e. off the plans. It reduces their risk because they know they are sold and they can then raise funds to proceed to the next stage of the development.
The benefits of pre-sales mean that developers will often offer a discount to early buyers. But the discounts are also to compensate for some potential drawbacks.
Time – you may have to wait a long time between paying your deposit and taking possession
Vision – it can be difficult to accurately visualise how your apartment or house (or the entire development) will look and feel before it’s actually built
Market uncertainty – if the property market drops between the time of signing and completion you will be paying above market value
Developer uncertainty – you risk losing money if the developer has financial problems and the project doesn’t go ahead.
Ways to alleviate risk:
1.Spend time on the site. Does this location and development really suit you?
2. Familiarise yourself with the “display suite.” Pour over the sketches and plans for the apartment and the whole development so that you can visualise things as clearly as possible
3. What else has the developer done? Visit other buildings they have completed and try to see inside to check the quality of workmanship and finish. Make enquiries about the developer’s reputation – Google is a wonderful thing
4. Think about noise. Study the plan, the apartment’s layout and building materials. How much noise are you likely to hear from communal areas or other apartments?
5. Research prices in the neighbourhood. Is the off-plan price suitably lower than comparably finished prices elsewhere?
6. Get a copy of the Sales and Purchase Agreement to your lawyer. Developers often draw up their own versions. Check that:
a. You can sell it before completion if required
b. An acceptable completion date has been specified
c. There is a guarantee that the same quality fittings as in the display suite will be in the finished apartment
d. The developer guarantees to make good any defects and what time limits are specified for their notification
e. The developer has obtained the necessary resource and building consents.
The biggest risk for most buyers is whether the project will be completed on time. It is unlikely that a developer will “guarantee” a completion date, there are too many unforeseen circumstances, such as poor weather, or, ironically, lack of cash because of a failure to reach adequate off-plan sales targets. This could present you with problems if you have committed to move in at a particular time, such as additional rent and furniture storage costs.
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