22 Jan 2020

Pros and Cons of buying off the plans

pros and cons buying off the plans

We have had a lot of enquiry on what are benefits of buying off the plans and I can name quite a few but the article wouldn’t be fair without looking at the other side of the coin of what can go wrong.

There is a lot of negative media about the “developers going under” and rightly so, but it’s good to look a bit deeper of what can cause a fall in developers.

I’ll start off with explaining what buying ‘off the plan’ real estate really means. This means committing to buying a property that hasn’t yet been built. This means looking at a set of plans, 3D renders, sample boards and in the case of big apartments looking at the show home to make a decision of buying.

So the Pros of buying off the plans;

  • Suited for you – Buying early off the plans means you can reap the benefit of buying the best apartment to suit your size, need and budget and you may have the option of interior customization
  • Sale price – In the early stages of the presales, sale price tends to be lower than when the apartment is complete. This could be due to underestimation of the cost of construction, rise in the cost of construction and simply demand once development is complete as buyers and now truly see the product they are buying
  • Return on deposit – If the property market is on the rise you can gain a great return on a deposit by the time the development is complete.
  • Smaller deposit – the deposit requirement for every developer is different but generally, you can hold an apartment anywhere from 5% deposit to 10%. This is generally held in a Lawyers trust account which is not released to the developer till the development is complete.
  • Maintenance-free – The property is brand new and generally maintenance-free for a long time. In an apartment/unit situation, if there is maintenance to be done this is taken care and monitored by the body corporate which is hassle-free.
  • No reno’s -There is no renovation to do, there is no cleaning and tidying up to do when you move in as such and everything “should” come with a warranty (in our case it does !).
  • Lock up & leave – Most of the apartments are a lock up and leave scenario, where they may be in a block so you can leave the apartment without thinking too much about the lawns.
  • Specialised experience – Every development can be unique and therefore you can have a truly unique buying experience. This can range from the look of the development, the events and updates hosted by the developers and the experience of when the keys are handed over to the buyers.

Some of the cons;

  • Timing – The development can take longer than the committed due date
  • Return on deposit – Similar to market going up and making a profit, if the market does drop during the construction phase and you want to sell on completion, there’s a risk you could make a loss upon completion.
  • Minor design changes -You could find some items during the development have been changed (for better or worse) due to unavailability or cost rise.
  • Pre- Approval – Any delays could change the situation for the buyer as pre-approvals only last 3-6 months.
  • Project stops – There is a risk of the developer falling over and not completing the development. This is an interesting one and one I like to follow and look into in-depth.

Some of the reasons a developer can fall over are listed below;

  • Delays in project causing heavy penalties by the financier.
  • Lack of pre-sales due to incorrect marketing, incorrect pricing structure or simply the wrong development for the location.
  • Principle Construction company under the developer falls over due to underestimating the development with very low margins.
  • Overcommitment by the developer.
  • Insufficient capital in the development from the start of the development and a highly complex leverage development.
  • Highly complex and cross collateralised development portfolio, meaning if there are issues on one development, all developments can be hamstrung and if one gives, all the projects suffer.
    Developer/construction companies are very top-heavy with layers upon layers of management.

So as you can see there are pros and cons for buying a brand new apartment off the plans, ultimately you need to think about what lifestyle you want – do you want the ¼ Acre section and don’t mind the maintenance, or do you want a modern lock up and leave?

Are you willing to wait through the building process, or would you prefer to buy and renovate as you go?

Let us know your thoughts on off the plan purchasing!

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