A GUIDE TO BUYING OFF-PLAN PROPERTIES
Buying off-plan properties is a common practice in many parts of the world, while it is still considered risky in others. It gives you, the buyer the advantage of purchasing before many others. Having said that, there are certain points one must keep in mind before signing the sales agreement.
Buying off-plan properties is purchasing a property based simply on architectural plans. More often than not construction work on such properties commences once investment from potential buyers pours in. If you are fortunate enough, the developer might show you a sample unit for inspection, which may or may not be identical to your purchase once constructed. Therefore, careful inspection of one’s off-plan investment throughout its construction phase if of utmost importance.
How does purchasing off-plan work?
While in some constructions/countries, developers can make alterations to the design of a property without seeking prior approval from the buyer, in others, developers end up paying a penalty to the buyers for any minor change. In some countries it is common practice to expect buyers to pay in case of variation in the construction cost. These reasons along with others are how an off-plan purchase and sales contract differs from a standard one.
While signing a sales contract a deposit must be paid, the amount however can vary from a minimal amount to fifty percent of the total price. The deposit is held in a trust account till a certain stage of construction is reached.
What is the duration of the process?
Depending on the country you are making your investments in the duration changes. In some countries post signing the agreement there might be a cooling-off period, which is the stage during that gives you have a chance to withdraw from your purchase, which might lead you to forfeit a part or all of your deposit. This is the main reason why professional legal advice is vital before buying off-plan properties.
The actual construction time varies across various developers. The actual construction time could range from 12 months to 4 years. The sales and purchase agreement must state clearly the date of completion of the development and provide details of the penalties in case of failure to meet the agreed deadline. Some countries levy construction delay penalties as a part of the law of the land regardless of them forming a part of the agreement.
What are the advantages of buying off-plan properties?
For first-time buyers and investors buying off-plan properties is a very flexible option as it gives enough time to acquire the required funds. At the time of signing the contract, you are made aware of the price you will be paying on completion; usually the market would have grown before completion thereby creating capital growth, though this is not guaranteed.
Sometimes, off-plan properties can be customized as per the needs of the individual buyer. You may be able to choose the furnishings, appliances and the type of finish.
What are the risks involved in buying off-plan properties?
The Completion of a project is not guaranteed, there is always a chance that the project could fail or even fall apart owing to many reasons. You must get your lawyer to check on the developer and take necessary precautions before signing on the dotted line.
The resulting unit might vary from the original plan. Developers often reserve the rights to make changes. In some countries the developers cannot make changes without your agreement. In case the real estate market declines, which will mean you will be paying more than the market price upon completion. This could seriously impact you especially if the bank valuation is lower than your anticipated value which will mean you might end up struggling to obtain the mortgage that you were expecting at the start. It is very challenging to measure the resale value of off-plan properties, particularly in the areas that are seeing significant development and have been identified as hotspots.
No matter where in the world you are, how good of an instinct you have or how much you trust the words of the sales person, you must not take legal advice lightly while buying off plan.
Key Phrase: Buying off-plan properties