Purchasing property off plan – means that you agree to buy the property before the building has been completed. In most instances, a developer will present you with a show house and plans to give you an idea of what the end product will look like. Like any ordinary transaction there are risks and benefits. Below are a few you should be aware of.
ADVANTAGES OF BUYING OFF PLAN
- There might not be transfer duty (tax payable to SARS on the acquisition of property) payable if the Developer is registered for VAT and sometimes the transfer fees (attorneys fees for registering the transfer) are included in the purchase price as well as VAT.
- Bond repayments are delayed until construction has been completed. This however, is dependent on the nature of your mortgage loan and your chosen financier.
- A hand – over inspection is to be completed before you take occupation and if any fixtures or fittings are not to your satisfaction, you will jot it down on the ‘snag list’, which is to be handed to the developer. Your may also refuse to take occupation if the repairs on the snag list have not been completed.
- Since the building as well as its fixtures and fittings are brand new – all major repairs and extensive maintenance may be delayed. The duration is development dependent and is something you should clarify with the developer beforehand.
RISKS OF BUYING OFF PLAN
- Delays in construction are inevitable, however in some instances the development might be delayed for an extensive period of time. Should the building not be completed within the stipulated period as per your loan agreement, your financial institution has the right to withdraw offering of funds.
- The property market may fall and rise, by the time the building has been completed. There is a possibility that it will be valued at less than what you paid for.
- If the development has not been built to the specifications of the approved plans, the local municipality will not issue an ‘occupation certificate’. This means that you are not allowed to take occupation of the property until such a time that the property has been repaired or new plans have been approved.
TOP TIPS FOR BUYING OFF PLAN
- Conduct your due diligence, ensure that you are purchasing form a reputable property developer, request that the developer provides you with confirmation of NHBRC (National Home Buildings Registration Council) registration. This will provide you with an avenue of recourse in the event that you run into problems with the developer. Since NHBRC membership includes insurance against major structural defects and waterproofing.
- Keep in touch with the developer: request regular updates and visit the property to see how the building is progressing. This way you will hold the developer accountable to timelines and you can plan accordingly.
- Include a ‘long stop date’ in your offer to purchase: this is the date that building is to be completed by and if not then you will be able to walk away from the deal and be refunded your deposit.
Before signing your happy letter, be sure to obtain the guarantees and warranties for all electrical appliances such as the stove, geyser etc.