Buying off-plan property: Everything you need to know | SA Home Loans

19 Oct 2023

Buying Off-Plan Property: Everything You Need To Know

Have you been scouring the property market for months without finding a house that meets your needs? Perhaps there are properties available in your area and price range, but they fail to meet your requirements in other areas. You may want to make the next house you move into your home — but aren't willing to spend thousands to bring it up to your expectations

If this problem sounds familiar to you, an off-plan property could be a solution. Often marketed as a soon-to-be-built unit in an enclosed sectional title or home cluster scheme, off-plan properties give you some say on their construction so you can customise it to your preferences. They're also new builds, freeing you from the maintenance and repairs old houses can require.

Before you rush into purchasing an off-plan property, we recommend taking time to familarise yourself with what they're all about. Here's what risks and benefits you can look forward to and how you can prepare yourself for purchasing one.

What's an off-plan property?

Property and real estate developers often acquire plots of land in areas set to experience a population or infrastructural boom. They divide the land into different sized units that collectively will form a sectional title or cluster scheme. Unit sales can take place 12 to 24 months before each home is built. Because construction doesn't begin immediately, buyers can sometimes choose different property layouts, floor plans or fittings.

Off-plan properties are sold before they're built, and developers use this money to fund the physical building of each property and its shared facilities. To encourage early sales, developers can offer early buyers cash discounts or incentives.

To help buyers visualise their homes, the project's architects and builders can draft realistic property plans, using blueprints and a little imagination to create 3D renderings of what each property could look like upon completion.

Benefits of buying an off-plan property

While the terms and conditions of individual off-plan property developers differ, here are some benefits you could look forward to:

Bespoke design and decor

Taste is subjective, as is what your family will need from a property. Buying an already built home means you'll be living in a property constructed and outfitted to someone else's taste and lifestyle. Alternately, you'll have to invest time and money to transform it to your standards.

With an-off-plan property, you get choice. You can also select a layout and fittings that best suit your lifestyle. For example, a family with young children may choose a property with an enclosed garden or spare room over one with a balcony while a single person may choose a floor plan with a larger entertainment area over one with additional rooms.

Improved savings and profits

Developers recognise that buying a house that only exists in theory is risky. They may allow you to put a smaller deposit down to secure it, with any outstanding payments only due when the property is built. Before it's built, a property will have limited value. As construction proceeds and developers create show homes and finalise actual properties, public interest and demand will likely increase — improving the property's value.

With off-plan properties, you won't need to pay Transfer Duty, and Value Added Tax is usually included in the property's purchase price. If you sell the property before it's built, you may be able to pocket any profit made without paying Capital Gains Tax. In some cases, the developer will even chip in to pay some legal costs such as your title deed registration fees.

Recognised legal protection

The South African legal system recognises that off-plan properties come with some risks to the buyer. To mitigate these risks, they've given buyers coverage through the Consumer Protection Act and the creation of a governing body in the form of the National Home Builder's Registration Council.

This organisation requires that developers use registered builders and provide buyers with a Certificate of Enrolment before building commences. Builders are also required to submit approved plans, a specification schedule, a list of materials they intend to use and a copy of the building contract to the buyer. These documents show that the builder and developer have taken steps to comply with the NHBRC and law's requirements. Should the property fail to meet quality standards or fall behind schedule, the buyer will have recourse with the law and NHBRC.

Risks of buying an off-plan property

The biggest risk a buyer will encounter when buying an off-plan property is that for one reason or another, the building will fail to materialise. The developer could run out of money and declare bankruptcy, or the entire building site could be shut down due to safety reasons or outstanding supplier bills. Alternatively, the property could face massive delays for completion or be completed on time but possess serious structural defects.

No matter which of the above scenarios occur, the result will be that you'll be without a property. Even if you have recourse under the law, you could still be out of pocket after spending time and money contesting or resolving the issue.

Unforeseen circumstances such as flash flooding on the building site or international building supply shortages can hinder a build's progress and are unavoidable. However, there are ways to minimise the odds of other issues taking place with your off-plan property.

What to do before buying an off-plan property

The best way to prevent disappointment and unexpected bills with your off-plan property purchase is to do extensive research before you commit to one. When evaluating a potential off-plan developer, investigate the following:

  • Their completed off-plan property projects
  • Their financial health
  • Reviews from past buyers
  • Their preferred partners (facilities management, building suppliers and lenders)
  • Their history in the market

Collectively, this information will give you a good idea of whether you can trust a developer to execute an off-plan property development to your expectations.

Before you go

Before you commit to any off-plan property development, you might want to get your financial ducks in a row to prevent delays or disappointment down the line. SA Home Loans can help you with this by offering you reliable financial guidance on prospective property purchases and how to afford them. Contact us today 0860 2 4 6 8 10 for more details or request a Call me back.

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